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Santova Deep Dive

April 16, 2024
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Taking a look at my largest long-term holding

 

Key Financials

  • Share Price = R7.84
  • PE Ratio = 6
  • ROE = 22.21%
  • ROA = 16.74%
  • Market Cap = R1.06 Billion
  • 1 Year performance = +102%

 

Vision

To be a leading brand in global trade solutions through strategic international offices and unrivalled intellectual capital. 

 

Operations (as per Santova website)

The Santova Group is an international technology-based trade solutions specialist listed on the JSE. The Group is represented in 10 countries through its own offices in South Africa, Mauritius, Germany, Netherlands, United Kingdom, Australia, Hong Kong, Singapore, Thailand and Vietnam.

The Groups strategy is to continually develop and invest in key differentiators, predominantly technology and intellectual capital, that set it apart from its competitors. This is achieved by offering clients leading cloud-based technological supply chain solutions that enable clients to achieve a competitive advantage through a multidimensional, innovative approach to international trade.

As companies continue seeking worldwide sourcing and distributing products in multiple markets, they require extensive sophisticated operational and logistics solutions across geographies. Through being extremely client-centric in its approach, Santova is able to capitalise on its international offices, systems and processes and leverage off a borderless and integrated world economy which is driven by globalisation and technological advancements.

Supply Chain Solutions

The design, planning, implementation, coordinating, controlling and monitoring of the integration and management of interdependent supply chain activities and global intellectual capital with the objective of enhancing further differentiation from competitors through the alignment of business strategy with supply chain optimisation.

Business Intelligence

We empower our clients by unlocking supply chain data and facilitating transparency through unrivalled electronic tools which enables the strategic optimisation of the businesses supply chain. Our virtual clientcentric information systems accommodate client specific requests and adaptations to the software which allow interface with client systems. The result being global end-to-end inventory/order management and data interchange which offers a lot more than typical track and trace services.

Logistic Services

The planning, coordinating implementation, and controlling the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers requirements.

Client Sourcing and Procurement Management Services

At the request of our client, we assist in the sourcing and procurement of goods, services or works from an external source. Our focus would be that they are procured at the best possible cost to meet the needs of the client in terms of quality and quantity, time, and location.

Express or Time Sensitive Courier Services

Santova Express is uniquely client-centric in its offering and fulfils international express delivery requests on-demand, carrying out door-to-door delivery of goods, including attending to all formalities when delivering across international borders.

Financial Services

Risk solutions (short term insurance solutions) range from captive insurance products, profit share facilities, risk transfer and risk management programs to self-insurance funded facilities. This would cover commercial, domestic, marine and structured specialist once-off insurance products.

 

Latest Financials:

  • Revenue up 40% (offshore 82.6%, local 17.4%)
  • Operating margins increased from 22% to 36.9%
  • Net profit after tax increased 144,0%
  • Headline earnings per share up 169% 
  • Return on equity up 25% 
     
  • Debt to Equity decreased from 14.0% to 6.3% 
  • Debtor days improved from 48.4 days to 41.7 days
     
  • NAV increased 27.3% to R5.59 per share
  • Cash on hand R270.8 million vs R190 million in 2021. 
  • Cash generated from operations decreased 6.9% due to reinvestment
  • Directors own 17.44% of the company.

 

Regions

Europe = 42%

United Kingdom = 22%

Africa = 20%

Asia Pacific = 16%

The year-on-year growth in earnings was organic. In Africa alone, year-on-year growth in earnings after tax was 445,5%, whilst Europe grew by 221,5%, the United Kingdom by 69,8%, and the Asia Pacific region by 49,8%. 

Thoughts:

Africas revenue growth of 445.5% shows lots of promise! In the presentation, management highlighted that they signed up new clients in this region, which also means that the new clients could start spending more with Santova and give it a nice momentum boost. 

Overall, all regions are looking very strong for Santova.

 

Industry

  • The logistics industry remains an exciting market to be participating in. 
  • Whereas the global logistics market was worth US$10 billion in 2021, it is expected to be valued at US$13 billion by 2027, which represents a compound annual growth rate of 5,7% over five years. 

(Allied Market Research: Global Logistics Market, Opportunities and Forecast 2020 2027). 

 

Bear arguments

  • Growth through acquisitions. They are buying 3 PE companies, but why would those companies sell at such low valuations if they are quality companies? 

Thoughts: Logistics is a massive industry, but not always easy, especially if you are a smaller player. Santova opens many doors to these smaller companies. 

  • Low liquidity in SA market.
  • What if they get acquired by n large international player?

 

Final thoughts:

  • Santova is now the largest holding in my JSE Portfolio.
  • The share price had an amazing year so far, so I wouldnt be surprised if the share price will be stagnant for a while.
  • This is a long-term play for me.
  • I like the following factors about Santova
  • Logistics market is large and exciting
  • They offer end-to-end supply chain solutions
  • Great track record
  • Management has skin in the game
  • All metrics are pointing towards a positive trajectory
  • Their operations have momentum
  • Geographical diversification
  • Good valuation, PE of 6.
  • I trust and back the management.

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