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Company Overview

 

  • Bidcorp is an international broadline foodservice group, present in five continents and over 35 countries.
  • In its 2019 financial year, Bidcorp served more than 300,000 customers. The company serves as a ‘one-stop-shop’ for retailers, restaurants and hotels: it deals with over 20,000 suppliers, offering a wide variety of food products (>320,000 SKUs).
  • The company employs around 26,000 people and was founded in 1988. It separated from Bidvest and listed on the JSE on 30 May 2016.
  • The Australasia division consists of Bidfood Australia (66% of revenue) and New Zealand (34%).
  • Bidfood UK (85%) and Bidfresh (15%) make up the United Kingdom
  • The European division spans thirteen countries across western and eastern Europe. The Netherlands (c.12% of group revenue) is Bidcorp’s largest individual country exposure in Europe.
  • The Emerging Markets division includes Bidcorp’s operations in South Africa (Bidfood SA, Chipkins Puratos & Crown Food), South America, Asia and the Middle East. South Africa makes up just under 10% of group profit.

 

Key Investment Drivers

  • Largest food distributor outside of the US, providing significant scale benefits and potential future growth opportunities in all operating regions. The business is comprised of a mix of well-established, leading and/or growing market positions.
  • Defensive in nature as it operates in the relatively defensive foodservices industry. This is further enhanced by Bidcorp's geographic (developing and emerging markets; biggest geographic footprint of its peers) and customer segment (small, medium and large customers) diversification, and the company's annuity-income (long-term contracts) based business model which provides increased stability to earnings.
  •  Positive and attractive industry fundamentals as the foodservice industry continues to experience solid growth (higher than GDP at around 5% p.a) driven by the global trend towards out-of-home dining. While the industry as a whole is characterised by low barriers to entry, strict health rules and regulations governing the industry do make it challenging for new competitors to enter the space to some degree.
  •  Decentralised (locally-based) and entrepreneurial management teams, as well as business model of shared operational best practice and "direct-to-customer", leads to closer local customer and supplier relationships and hence superior value-added product and/or services (better understanding of customers' specific needs and requirements depending on size and/or geography; tailor-made, innovative and more specialised service offering) relative to other offerings from competitors.
  • Strategy of bolt-on acquisitions in existing geographies and acquiring businesses in new (potential US acquisition) geographies facilitated by ungeared balance sheet, highly cash generative nature and competent management team with deal-making experience.
  • Further margin expansion highly probable as Bidcorp continues to gain scale, both organically and through acquisitions in a number of the international territories in which it operates, and as the business continues to move away from high-volume/low-margin 'logistics-type' (quick service restaurants) contracts, and gains market share in the low-volume/high-margin independent customer space (mix change). This restructuring has also given management more time to develop and focus more closely on the core foodservice businesses.
  • Increasing own-brand penetration: Independent customers are becoming more willing to make use of higher-margin private label product supplied by distributors such as Bidcorp. Bidcorp’s own brands still make up a small proportion of group revenue (c.18%), so there is an opportunity to increase private label sales over time, which could further enhance profitability.

 

Risks

  • As Bidcorp is particularly exposed to discretionary spend sectors such as hotels, restaurants and pubs, the Covid-19 outbreak has had a significant and negative impact on the company. While the group has attempted to replace a small portion of this lost revenue through new channels (home delivery and supply to other retail related channels), this will be insufficient to offset the volumes lost due to the outbreak.
  • Increased competition resulting in lost market share and margin erosion.
  • Food and product safety (outbreaks and contaminations).
  • Changing consumer eating habits (declining restaurant activity due to ordering-in/delivery) – especially post Covid-19 outbreak.
  • Supplier issues and climate change, impacting product quality and availability.
  • Further Brexit-induced domestic consumption slowdown in the UK, not offset by the potential increase in tourism from a weaker Stirling.
  • Continued underperformance by Bidfresh in the UK.

 

About the Author

Nicholas Dakin
Equity Analyst, Sasfin Wealth