Barloworld shares surge on strong financial results, special dividend

Shares in Barloworld surged 7.54% to close at R145.18 on Monday after the JSE-listed industrial processing, distribution and services company reported strong financial results and declared an ordinary and special dividend.

Barloworld Group CEO Dominic Sewela said on Monday that the firm had produced impressive results despite the challenging environment.

“I am pleased that the decisions we have made in the past have been value-accretive to shareholders and have positioned us to remain agile to the changing operating environment,” he said.

Group revenue from continuing operations grew by 22.5% to R41.6 billion in the year to end-September 2021.

Sewela attributed this to the turnaround in Avis Rent A Car and the acquisition of the Equipment Mongolia and Ingrain starch businesses.

Read: Tongaat sells starch business to Barloworld unit for R5.26bn

Operating profit from continuing operations improved 119% to R4.3 billion as the operating margin improved by 450 basis points to 10.3%.

The strong margin growth resulted in profit for the year improving to R2.8 billion.

Barloworld finance director Nopasika Lila said if you compare this to the group loss last year of R2 billion, “this has been a phenomenal performance”.

She said the Equipment Southern Africa and Eurasia divisions represented 70% of Barloworld’s total revenue.

“New acquisition [activity] exceeded our expectations at R6.6 billion and thus contributed 16% of the 23% group growth in the financial year,” Lila added.

The group’s net debt following the Ingrain acquisition declined to R2.3 billion from R2.7 billion in the prior year.

A turnaround in group headline earnings per share was achieved with earnings of 1 195 cents per share from the 268 cents per share loss in the previous year.

An ordinary final dividend of 300 cents per share was declared plus a special dividend of 1 150 cents per share.

This boosted the total final ordinary dividend for the year to 437 cents per share and the total final special dividend for the year to 1 350 cents per share.

Where to from here?

Sewela said Barloworld needs to ensure it produces financial results like this in a sustainable way and the group’s active shareholder model is paying dividends.

Read: Barloworld’s new strategy draws questions

“We integrated two new businesses into the group, Equipment Mongolia and Ingrain, both of which have done far better than we anticipated; sold our motor retail assets in our quest to move to relatively asset light and defensive businesses; and commenced with the sale of the logistics business,” he said.

Sewela indicated that Barloworld plans to sell the Avis car rental and leasing business by the end of the 2022 calendar year.

He said the group will also be driving acquisitions in adjacent businesses to the existing portfolio.

Sewela reiterated that the group’s strategy is based on a clear and ambitious outcome of doubling the group’s intrinsic value every four years, directly translating into the need for Barloworld to be forward-looking in how it approaches its business.

In line with the group’s focus on optimally deploying capital within the group and exiting certain businesses, Sewela said Barloworld’s board approved a formal disposal process to exit the logistics business after several expressions of interest.

Read: Barloworld to sell its logistics business by the end of the year

“This is now underway and we are negotiating the piecemeal disposal of various sections of logistics in response to high levels of interest in smaller business units. Focus remains on sales transactions that continue to support our customer requirements and protect value for the group.

“In light of this approach, the group has entered into sale agreements in respect of its controlling interest in Aspen Logistics and the shares in subsidiaries which own Manline Energy, Manline Freight and Timber 24,” he said.

Sewela said these two agreements cover the bulk of the assets within the Barloworld Transport business but remain subject to regulatory approval.

He said Barloworld will also be selling its supply chain business “in the not too distant future” and has “resorted to taking a piecemeal approach given the fact that in July the crisis led to some of the buyers exiting that process”.

This is the reference to the riots and unrest in KwaZulu-Natal and parts of Gauteng in July this year.

Sewela said the outlook for Barloworld for its 2022 financial year remains positive and they are encouraged by the performance of their Industrial Equipment and Services businesses and opportunities for this business in the year ahead.

An analyst who did not want to be named said that while Barloworld has produced a solid set of results, he is sceptical about the group’s future performance.

The analyst does not believe Barloworld is a cyclical business any longer or that the business has changed structurally and structurally reduced its working capital requirements.

He said Barloworld has released a lot of capital but suggested this is typical of engineering companies in South Africa now where there is short supply, relatively short supply chains and “problems getting stuff”.

“You have got an almost unique situation where you have got quite tight markets and therefore you have good pricing, which has come through in the margin, and almost artificially low working capital requirements right now because there is quite a lot of stock that has backed up.

“It is quite a nice situation for Barloworld but the question is how long will it last. It’s certainly not sustainable through the cycle but I cannot say if it continues for six months or two or three years but cyclically the margins are close to peaking.

“I do not think that they can run low working capital structurally,” he said.