Mid Cap Darlings – Imperial


Mid Cap Darlings – Imperial

Published Date: 2019-04-25 | Source: INCE|Community | Author: Sifiso Skenjana

Mid Cap Darlings – Imperial

An African proverb says that "ukuhamba kukubona", which loosely translated means that through travel, you get to see. Imperial Logistics Limited is not a spectacles company, but through their logistics operations, you may see - at least the industries they serve will see.

Business Model: Imperial provides integrated supply chain and logistics solutions primarily in Africa, but with operations in the Eurozone. They employ approximately 30 000 people across 38 countries. Ranked among the top-25 global logistics providers, Imperial Logistics has established capabilities in transportation, warehousing, distribution and synchronisation management and expanding capabilities in international freight management. In their consumer packaged goods business they provide solutions for the likes of Diageo, McCain, Colgate-Palmolive and Distell amongst many others across mining, manufacturing, automotive and healthcare industries

Macro Landscape: The logistics business is closely tied to global economic growth and macro-economic developments. The emergence of eCommerce is fast changing the shape of consumer-focused logistics industries, seeing an increased focus on efficient inventory management and warehousing solutions. There is also a growing use of third (3PL) and fifth (5PL) party logistics is expected to reshape the market going forward. 3PL, which contributed the largest market share globally, focuses on end-to-end logistics solutions including transportation, inventory management and insurance of transported goods. 5PL focuses on linking eBusinesses in order to help them achieve their minimum cost targets - this moves the focus from supply chains to supply networks.

Results (Six months ended 31 December): Imperial saw revenue growth of 6% with an operating profit of R1.3 billion. The company reported a renewal rate of more than 90% on existing contracts and revenue of R4 billion from new business over the last 12 months, suggesting a decent pipeline of opportunities for the group.

Growth Prospects: The African logistics business had excellent performance over the period and presents good opportunities for growth given that 49% of its revenue comes from the healthcare sector, which tends to be more defensive - ie not as sensitive to changes in the global growth environment. The South African logistics business is largely concentrated in consumer packaged goods and mining and manufacturing with a revenue contribution of 38% and 24% respectively. Elections overhang may dampen the rate of growth for the South African business, at least for the first quarter and early parts of the second quarter. In the long run, however, this business may present good opportunities for steady and consistent growth. It is really not a pretty business, but it could potentially give you pretty returns for your investment portfolio in the long run.

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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 founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.

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