If you live anywhere in Gauteng, you cannot help but see the Value Group (VLE). Whether large trucks, medium size moving vans or canopied bakkies, Value branded vehicles are on the roads, near warehouses or busy resupplying your local supermarket. According to their latest annual report, they “specialise in providing a diversified range of supply chain services, which encompass distribution, transport, clearing and forwarding, warehousing, fleet management, materials handling and commercial vehicle rental and full maintenance leasing.”
The increasingly ubiquitous presence of the group indicates that business has grown significantly in the last decade, however the share price has not really moved, still trading at around R5/share, the same as 5 years ago, with a market cap of R850m.
Earnings in the full financial year 2019 were 89c. The earnings for the first half of the 2020 year came in at 30c, however, earnings are historically seasonal, with the second half coinciding with the peak Christmas trade period. In the words of the group, “… the board anticipates that … earnings will at least be maintained in the 2020 financial year.” This puts the group on a forward PE ratio of 5.5.
Strong earnings growth in the last two years has shown that the group has the capacity to grow in a difficult economy. This is not surprising, as in difficult times, people are more likely to hire their own moving van, then to go with a lumpsum service provider and business are more likely to subcontract logistics or lease vehicles than to incur capital expenditure to expand their own fleet. Therefore, I am confident that the group will continue to be a solid earner both in good and bad economic environments.
The group operates on an excellent gross profit margin of 30% and has cash conversion of around 100%. Cash from operations in FY 2019 was R320m or about one third of the market cap of the business. And the group is generously returning this to shareholders. Last year’s dividend was 40c, with H1 2019 coming in at a 23% increase. If last year’s dividend is maintained, then the yield is 8% and if final dividends are increased in line with the first half, the forward yield could be as high as 9.8%.
Management also recognises that shares are significantly undervalued and are therefore returning further cash to shareholders by means of a buyback programme. Last year R36m (or around 4% of the group) was repurchased at R4.74/share. In H1 2020, the buyback continued with a further R8m. Total debt of R600m is under control at 60% of equity.
I leave final words to management and support wholeheartedly that “the Group is well positioned to grow organically and by acquisition.”