Our opinion on the current state of HDCHudaco (HDC) is a prominent importer and supplier of a wide range of automotive, industrial, and consumer products, primarily serving the Southern African market. Its business operations encompass two main areas: (1) the distribution of automotive security, power tools, communication devices, and business supplies to the consumer market, and (2) the supply of mechanical and electrical power transmissions, diesel engines, hydraulics, pneumatics, steel, thermoplastics, fittings, and bearings to the mining and manufacturing sectors. With a well-established presence, the company boasts 26 warehouses, partnerships with 800 international suppliers, and operates through 140 branches, offering an extensive portfolio of approximately 230,000 products.
Hudaco has faced challenges in exporting goods due to inefficiencies at South African ports, particularly in Durban. To strengthen and expand its business, the company consistently pursues bolt-on acquisitions. In its financial results for the year ending on November 30, 2024, Hudaco reported a 9.1% increase in revenue and a 7% growth in headline earnings per share (HEPS). The company's net asset value (NAV) also experienced an 8.7% rise, reaching 11571c per share. Hudaco highlighted the adverse impact of load-shedding, logistical problems at ports, and Transnet's ongoing challenges on South Africa's economy and foreign investor confidence.
Throughout the year, Hudaco allocated funds for acquisitions, investing R171 million, in addition to R33 million in property and R112 million in share buy-backs. On August 28, 2023, the company announced its acquisition of Brigit for R315 million, followed by the acquisition of Plasti-Weld for R56 million on November 30, 2023. Hudaco is known for its excellent management and operates effectively within a challenging economic environment. As the South African economy improves, Hudaco's financial performance is expected to benefit directly. The company's shares are trading at a P:E ratio of 7.66 and offer a dividend yield (DY) of 4.78%, which represents an attractive valuation. Hudaco is considered a solid, long-term investment opportunity, particularly as South Africa's economic conditions enhance.
