Hudaco (HDC) is adeeply entrenched in many aspects of the South African . It describes its business model as “principally the sale of replacement parts with a high value-added component”. It has 11 businesses in consumer-related products and 18 businesses in engineering consumables.
Over the years its highly competent and conservativehave shown themselves to be very skilled at making which diversify and expand its . The latest example of this is the of Cadac, a very well-known South African brand, supplying a wide range of products related to gas, from cylinders to skottels.
The company says of Cadac, “The purchase price is based on a multiple of the average adjusted after-tax profit for the three years ending 30 September 2020, 30 September 2021 and 31 January 2023, with a maximum price of R100 million”.
So, in effect, Hudaco is buying annuals of R33m for R100m. Once the acquisition is complete, those earnings will immediately be added to Hudaco’s annual after-tax earnings and re-valued to Hudaco’s current (P:E) of 9,7. This means that Cadac will jump from having a value of R100m to having a value of R320m (9,7 X R33m) – and the of Hudaco will make an immediate gain of R220m (R320m – the R100m purchase price). That is why it is so valuable to have a management team like Hudaco’s that regularly makes this type of bolt-on acquisition and has proved their ability to do so safely and profitably time and again.
In its latestfor the year to 30th November 2021 the company chose to compare its performance to the 2019 year, since 2020 was dominated by In that comparison, its rose 8% (against 2019) and its (HEPS) rose by 21%. These are exceptionally good numbers given the challenges of the 2021 financial year which included:
- the 2nd, 3rd and 4th waves of COVID19,
- the July 2021
- a worldwide shortage of semi-conductors and other
- a severe shortage of shipping containers and ships ready to carry them,
- bad congestion at South African ports, especially Durban, and
- periodic bouts of load-shedding.
In 2019 and 2020 we drew attention to thein this share and suggested that investors wait for a clear break up through the . Consider the :
You can see here that the downward trendline was broken on 27th January 2021 when thewas trading for just over R90. It has since moved up very strongly to just over R159. At this level it is trading on a of 9,7 with an attractive of 3,82%.
In our view, Hudaco represents really good value. During 2020, theengaged in a program of s which saw them buy just over a million Hudaco shares at an cost of about R80 per share. By the end of 2021 the NAV had risen to over R95 a share, so shareholders had made a gain of R15 per share, on those repurchases.
We believe that as the South African economy continues to recover, this share will perform well. It is superbly managed, well capitalized and widely.
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