Our opinion on the current state of BAW

Barloworld (BAW) is an international supplier of heavy earth-moving equipment and vehicles to the mining, agriculture, infrastructure, power, automotive and logistics sectors. Its best-known brands include Caterpillar, Avis, Massey-Ferguson, and Challenger. It operates in 24 countries, especially in Southern Africa, Russia, and other emerging markets. Its wide diversity of operations and geographical activities give it some insulation against recession. BAW has sold its Spanish and Portuguese operations for about R2,5bn which it is now looking to invest in Mongolia with the acquisition of US-owned Wagner Asia Group. The Ukraine crisis is making it more difficult for Barworld to get payments from customers in Russia and has pushed up the cost of some commodity prices, but the company says it has sufficient funds to manage the situation which has seen its share price fall quite sharply. In its results for the six months to 31st March 2023 the company reported revenue from continuing operations up 12,9% and headline earnings per share (HEPS) up 29,4%. The company said, "Equipment southern Africa delivered 38.4% higher revenue compared to the prior period, underpinned by activity in the mining sector and fleet replacements. Ingrain produced a pleasing 15.3% revenue uplift supported by higher commodity prices and growth in export volumes, which offset the flat domestic sales volumes. Revenue for Equipment Mongolia increased by 52% to $76.6 million". In a trading update for the 11 months to 31st August 2023 the company reported revenue up 15% and operating profit up 17,3%. The company said, "The operating margin at 8.0% (Mar 2023: 8.6%) was primarily impacted by the change in product mix (in favour of machine sales), while EBITDA at R2.7 billion was 13% higher than the prior period". Technically, the share fell heavily in March 2020 in response to COVID-19 and then moved sideways in an extended "island formation". There has been an upside breakout from the island and it has also broken up through its long-term downward trendline. Since January 2022, however, it has been drifting sideways and downwards. We believe it is good value at current levels. Obviously, developments in Ukraine and Russia will have major impact on this share. The company is separately listing and unbundling its subsidiary, Avis. On 26th May 2022, the company announced that it will be buying back 10% of its issued shares. On a P:E of 5,8 this share looks cheap to us.