Mid Cap Darlings – Barloworld


Mid Cap Darlings – Barloworld

Published Date: 2019-11-13 | Source: INCE|Community | Author: Sifiso Skenjana

Mid Cap Darlings – Barloworld

Barloworld is an integrated fleet solutions, product support and logistics management company. The yellow machines you often see in Caterpillar, are parented in this logistics powerhouse. Its supply chain solutions for the likes of Illovo, Nike SA, PPC, Toyota SA, Unilever, through the ManLine Trucks. And through all your weekend and festive season needs Avis and Budget Care hire is there for you, or if you are due for an upgrade on your wheel, they also have dealerships for Alfa Romeo, Audi, BMW, Fiat, Ford, VW, Volvo through the Barlow Motor Retail.

Business Model: Barloworld specializes in earthmoving equipment servicing mining and infrastructure and power systems for electric power, marine, petroleum and industrial companies. They also provide automotive solutions for short term vehicle usage, vehicle ownership solutions, long-term vehicle leasing and fleet management solutions. Their third major division is the supply chain solutions, transport, freight and warehousing.

Macro Landscape: The industrial equipment, logistics and automotive industry tends to respond closely with the general growth of the market and economy. We often say this sector is highly correlated with economic growth and has a beta measure close to 1. The local growth outlook continues to be revised downwards, with the latest revision from National Treasury expecting economic growth at 0.5% for 2019. This will place material strain on the revenue outlook for the sector, and Barlo specifically.

Results (6 months 31 March 2019): The company experience a decline in both revenue (-1.6%) and operating profit (-4%), while reporting headline earnings 14.1% higher and dividends 13.8% for the 6 months ended March 2019. Full year results should be coming soon, look out for those to see how they compare with the half year results.

Growth Prospects: Barlow, being a diversified player in the transport, supply chain solutions is probably better positioned to weather the downward economic slump and may still offer long term growth. The automotive and equipment businesses being the two largest revenue contributors are doing relatively ok when looking at their operating profits. A recovery in the South African economy certainly will be a materially ticker for the profitability prospects of this big big yellow machine. Will you wait it out before you start investing or will you ride the rough terrain?

About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is the founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.

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