Our opinion on the current state of BAWBarloworld is a global distributor of heavy earth-moving equipment and vehicles, catering to sectors such as mining, agriculture, infrastructure, power, automotive, and logistics. It represents well-known brands like Caterpillar, Avis, Massey-Ferguson, and Challenger, with operations spanning 24 countries, particularly in Southern Africa, Russia, and various emerging markets. The company's diverse operations and geographical footprint offer a degree of protection against economic downturns.
Recently, Barloworld divested its operations in Spain and Portugal for approximately R2.5 billion, aiming to redirect these funds into the acquisition of the US-owned Wagner Asia Group in Mongolia. However, the Ukraine crisis has posed challenges for Barloworld, especially in securing payments from Russian customers and dealing with increased commodity prices. Despite these hurdles, the company maintains it has ample resources to navigate the situation, which has nonetheless led to a notable decline in its share price.
For the fiscal year ending on 30th September 2023, Barloworld reported a 14% increase in revenue from continuing operations and a 5.5% rise in headline earnings per share (HEPS). Operating profit from core trading activities grew by 18.6% to R4.3 billion, with HEPS reaching 1,156 cents, up from 1,096 cents the previous year. The company also improved its cash flow, reporting a net cash outflow before financing activities of R0.4 billion, an improvement from the R1.4 billion outflow in the prior year.
A trading update for the four months to 31st January 2024 indicated a 5% revenue decline, attributed to the mining sector's slowdown and geopolitical conflicts. The company's share price experienced significant volatility, particularly in March 2020 due to COVID-19, leading to a period of sideways movement in what was described as an "island formation." Following an upside breakout from this formation and a breach of its long-term downward trendline, the share price has been exhibiting a sideways to downward trajectory since January 2022.
Despite these challenges, Barloworld appears to offer good value at current levels, particularly in light of its recent announcement on 26th May 2022 about repurchasing 10% of its issued shares. With a price-to-earnings (P:E) ratio of 5.68, the share is considered attractively priced. However, the ongoing developments in Ukraine and Russia are expected to significantly influence the company's performance and share price.
