Imperial is almost a pure-play African business

There was an interesting announcement out of Imperial Logistics (JSE:IPL) today, especially considering JSE companies were scrambling for “hard currency exposure” just a few years ago.

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Conglomerates have been out of fashion for a while. Investors prefer pure-play businesses that allow them to take specific exposure to an investment theme.
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For example, until a couple of years ago, Imperial offered shareholders exposure to a variety of logistics and automotive businesses in several countries. That’s great, unless for example you only want to invest in African logistics exposure.
This is typically the reason for “conglomerate discounts” which result in holding companies trading at a discount to the sum-of-the-parts i.e. less than the individual companies would be worth if sold off separately.

A journey to purity

In late 2018, Imperial unbundled Motus Corporation, passing the baton of its automotive business to shareholders.

Now, another significant step has been announced, as Imperial will sell its European shipping business that it acquired back in 1999. The South American business, which is small relative to the rest, is still up for sale. Once that is also sold, Imperial will be a completely African business.

Imperial is doing this to focus on its African strategy. It wants to be the “Gateway to Africa” in logistics and market access. That’s a refreshing change from South African companies scrambling to make offshore investments, often overpaying and taking on too much debt in the process.

The valuation is an enterprise value of €225m, which represents a healthy multiple of 11.5x EBIT (earnings before interest and taxes). That’s typical of the higher prices paid per unit of earnings in developed markets like Europe.

What did shareholders think?

The share price was up 4.3% on an otherwise tough day for the market, so investors clearly appreciated management’s strategic focus in challenging times ahead.
These deals take months (and sometimes more than a year) to put together, so the work happened long before COVID-19 hit Europe. It’s a lucky break for Imperial, as it strengthens its balance sheet and exits a tough region just in time.
Of course, all eyes will now be on what they do in Africa with the money…
  • Lomé Truscott

    Fortunately it is not a complete exit out of Europe or international markets, just the sell of the shipping business. Imperial still has a wide service offering and strategic focus in those regions.

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