Bidcorp is ready for summer

Bidcorp is a global foodservice group that offers a genuine rand hedge. The group has grown to cover five continents and can be bought right here on the JSE. Bidvest unbundled Bidcorp back in 2016 during a frothy time on the local market, which is why the share price gain since listing is just 8.2%, a snail’s pace compound annual growth rate (CAGR) of 1.3%. Between mid-2016 and the start of the pandemic, the CAGR was around 3.4% which isn’t exciting. This is another great example of why I tend to avoid new listings, as the entry price is often too high.

A useful trait of Bidcorp is that the company gives us insights into the hospitality industry and where consumers are spending their money. There are also property insights, like the hybrid working trend having hit office catering businesses which are only tracking 60% – 70% of pre-Covid levels.

In the last few months, group sales were running at between 100% and 120% of 2019 levels. Impressively, gross profit margin has “held up well” in this period despite input costs, assisted by the improved mix of the customer base and strategic buying ahead of significant price increases. The announcement notes that limited capacity in the wholesale environment gives an opportunity to “amicably part company” with customers that are less profitable. In other words, Bidcorp may use the current market pressures to get out of less attractive customer relationships, which could have a negative short-term sales impact but is the right decision over the long term.

This information comes from an update covering the ten months to April 2022. This period has seen tough inflation and fascinating labour shortages, with the announcement noting that restaurants in some countries are trading reduced hours and hotels have effectively mothballed multiple floors because they can’t find housekeeping staff! This is quite something when you consider the environment we have in South Africa of record unemployment.

Operating costs as a percentage of net revenue were 19.4%, which is still higher than the pre-Covid level of 18.8%. EBITDA margin in this period of 5.3% is up year-on-year from 4.3% but below pre-Covid levels of 5.7%.

Although free cash flow was an outflow of R2.3 billion due to working capital investment, this business is highly seasonal and generates cash at the end of the financial year. The full year result will give more details and I do expect to some some pressure on working capital, as we have seen in nearly every company at the moment.

The group is well within its debt covenants (2.5x net debt to EBIDA and an interest cover ratio of not less than 5x).

Forensic investigations into the Miumi fraud in China are now complete and nothing new has come to light. There are criminal and civil proceedings underway in both Hong Kong and China and Bidcorp hasn’t provided for any recoveries at this stage.

Overall, Bidcorp is looking forward to a European summer with a return of significant travel. Most other geographies are doing well except for China, which depends on an easing of Covid restrictions. The share price is slightly down this year and would benefit from a strong Northern Hemisphere summer period.