Our opinion on the current state of HDC

Hudaco (HDC) is an importer and supplier of "...automotive, industrial and consumer products" mostly in Southern Africa. Its business has two sides (1) supplying automotive security, power tools, communications, and business supply products to the consumer market and (2) supplying mainly the mining and manufacturing industries with mechanical and electrical power transmissions, diesel engines, hydraulics and pneumatics, steel and thermoplastics, and fittings and bearings". The company has a very well-established business with 26 warehouses, 800 international suppliers and 140 branches. Through this network they supply about 230 000 products. The company has been battling to export goods because of inefficiencies at South African ports, especially Durban. The group constantly makes bolt-on acquisitions to build and enhance its business. In its results for the year to 31st May 2023 the company reported revenue up 12,4% and headline earnings per share (HEPS) up 8,1%. The company's net asset value (NAV) increased 9,7% to 10809c per share. The company said, "Group sales at R4.3 billion for H1 are up 12.4% on H1 2022, however operating profit increased only 2.8% to R464.5 million on the back of a decrease in operating margin from 12.0% to 10.9%, still a respectable number considering the difficult trading conditions for the first six months, which were impacted by severe load-shedding and include the December, January and April holidays". On 28th August 2023 the company announced the acquisition of Brigit for R315m. Hudaco is an extremely well-managed company operating in a difficult economy. As the economy improves, Hudaco's results will benefit directly. The share trades on a P:E of 7,86 and a dividend yield (DY) of 4,66%. In our view, this share should be bought on weakness and offers solid, long-term investment potential as the South African economy improves. On 30th November 2023 the company announced the acquisition of Plasti-Weld for R56m.