beyondbrics

With South Africa’s sluggish growth prospects confirmed in Wednesday’s budget, you would think investors would be happy with an acquisition-hungry company delivering revenues up 22 per cent.

Imperial Holdings, South Africa’s largest car dealership and logistics company, completed seven acquisitions in the second half of 2011 – and that doesn’t include the recent purchase of German logistics provider Lehnkering for €270m. But shares were down 1.17 per cent at one stage on Wednesday before recovering slightly. You can’t please everyone.

Hubert Brody, chief executive, told Bloomberg that “the cash facilities and gearing demonstrate the group’s financial strength”. And it is still keen on further acquisitions: “It all depends on what we can find and the market environment.”

Quite. What the company has found is that buying companies to bolster their operations can’t necessarily protect you from any coming global storm. From the company’s statement:

While the current economic environment will continue to be challenging, Imperial’s businesses should continue performing well in most of their markets.

“Challenging” and “should” aren’t words to inspire confidence, whatever your balance sheet says.

This is all despite Imperial following a sensible strategy of looking to expand out of South Africa. The company revenues for the rest of Africa have nearly doubled, and the share of total revenues has risen from 3.8 per cent in H2 2010 to 5.7 per cent in the 2011 period. The revenues from the rest of the world as a proportion of the total have gone from 16.7 to 18.3 per cent. In absolute terms, the increases are less than the revenue boost from South Africa, but the company has more markets to focus on than just South Africa.

In 2010 Imperial bought CIC Holdings, a Namibian distributor. According to the company “the Namibian transport businesses were under pressure”, but the 60 per cent purchase of IJ Snyman Transport is partly to strengthen that business. Snyman is a logistics service provider operating in Angola, Congo, Namibia, South Africa and Zambia.

However, Imperial is still predominantly exposed to the South African consumer – and the cyclical nature of car spending. Mark Hodgson, analyst at Avior research told beyondbrics: “In the rest of Africa there are limited opportunities. There may be more scope for [acquisitive] growth in Europe.” He added that Imperial had made a “big bet on Germany, which they need to hold up.”

In fact, despite the strong set of results, according to Hodgson investors may be more concerned about margins being close to their peaks – as well as any global slowdown. German logistics need to deliver.

Related reading:
Transport & Logistics 2011, FT