Disclaimer: This post is not financial advice. All information provided is for educational and informational purposes only. I may choose to buy or sell at any time with no obligation to update or notify readers. Please always do your own due diligence. Consult a professional financial advisor before making any investment decisions.
1. Introduction and Business Model
The Santova Group is a South African company with 262 employees and a market capitalization of 47 Mio USD. It serves as a technology-based trade solutions specialist, delivering innovative end-to-end supply chain solutions. The Group is represented in 11 countries through its own offices in South Africa, Australia, Germany, Hong Kong, Mauritius, the Netherlands, Singapore, Thailand, United Kingdom, United States and Vietnam.
Santova generates value through the co-ordination and control of the transportation of clients’ goods across the entire global supply chain from source to destination, in a timely and costefficient manner. To achieve this the Group utilises the physical logistics resources and capabilities of specialised external logistics providers, together with the intellectual capacity of their staff and leading in-house developed IT systems. In creating this value for their key stakeholders, the Group acts as an agent on behalf of their clients by contracting for services from their suppliers and paying for those services on behalf of the clients.
2. Financials
Santova has managed to increase the revenue with a CAGR of 13.3% over the last 10 years. Net income has grown by 20.7% (source: finchat.io).
In the last half year revenues increased slightly year-on-year. However, net income decreased. This pressure is due to the sharp fall in freight rates throughout the past six months, as congestion has eased and global economic growth has slowed. The Drewry World Container Index (USD per 40-foot container), being a common indicator for shipping rates, reported a drop from a high of approximately USD9,700 in January 2022, to a low of USD1,400 in September 2023, rendering current rates now even lower than the 2019 pre-pandemic rates. South Africa’s economy remains relatively stagnant in the context of challenged state-owned enterprises and a general lack of structural reform needed to create jobs and revitalise the ailing economy.
3. Valuation
The company is currently valued at a PE ratio of 5.2 and an EV/EBIT of 2.4.
From 2013 to 2019 Santova paid out dividends. Since then, the company creates shareholder value by buying back shares.
4. Outlook
4.1 New Business segment
To hedge through diversification and capitalise on a rapidly transitioning market to e-commerce sales, Santova has made the bold decision to introduce a new proposition to the market. In April 2023, the Group completed a ‘soft launch’ of Sekida, its e-commerce platform, which is designed to grow clients’ sales, broaden service offerings, increase ‘reach’, and generate new revenue streams 24/7.
With the global e-commerce market expected to grow from US$6,3 trillion in 2023 to over US$8,1 trillion in 20263, Sekida was launched with the intention of capitalising off this fast-tracking transition in purchasing trends.
Sekida’s global business-tobusiness (“B2B”) portal is a digital marketplace for merchants and
consumers, providing merchants access to new territories and markets by offering a streamlined online shopping experience and ensuring secure door-to-door delivery. Due to its global sourcing of goods, competitive prices, reliable logistics, secure payment facilitation and trade assurance, it is an ideal platform for B2B transactions.
4.2 Outlook on core business activities
The Drewry World Container Index has slightly recovered from it’s lows. As stated in the last report the drop in earnings are related to a sharp decrease in the index with a low at USD 1,400. With a recovery from it’s lows chances are that net income will increase in the next quarters and result in even lower valuations.
Link to the world container index price over longer time frame:
https://en.macromicro.me/charts/44756/drewry-world-container-index
5. Risks
The risk section can be found in the annual report. Risks that I personally see are listed below:
- A slow-down of the logistics sector world-wide and more so in South Africa could bring a significant headwind for operational activities of the group
- Santova is a South African company that could suffer from low growth in the country. Furthermore, corruption and governance challenges in South Africa put a significant risk to business activities of the company.
- Investment returns in Santova are directly tied to the currency risks of South Africa – the South African Rand (ZAR) relative to Euro. While business activities take place world wide and thus mitigate currency risks, still 29% of logistics services profits were generated in South Africa in 2023.
6. Summary
The Santova Group is a South African company with a market capitalization of 47 Mio USD. It serves as a technology-based trade solutions specialist. It has consistently increased revenue and net income over the last years. It currently trades at a valuation of EV/EBIT = 2.4. Headwinds in the logistics sector and a drop in freight rates and freight costs resulted in a decrease in net income in the last half year. The launch of an e-commerce platform in the last year and a recovery of the world container index could result in an increase in top and bottom line growth. Risk of fluctuations in the demand of Santova’s services and currency and country risks exist.