Noko Mantome, junior equity analyst at Momentum Securities, revealed that Hudaco Industries is their stock pick of the week.
Hudaco Industries is a South African group that imports and distributes branded automotive, industrial, and electrical consumable products in the southern African region.
The company sources branded products, mainly on an exclusive basis, directly from leading international manufacturers and a few local manufacturers.
Hudaco Industries is a medium cap stock – with a market cap of R4.74 billion – listed on the JSE and trading at around R146 per share.
Mantome said Hudaco increased its operating margin and turnover above its pre-Covid levels during challenging trading conditions that still prevail.
“It highlights how defensive this business is and how strategic Hudaco management is,” Mantome said.
“We believe the stock is fundamentally strong and can bring value to shareholders in the near term.”
Consumable related product segment benefits the business with a double digit increase in sales for the six months’ period ending 31 May 2022.
This segment’s contribution to group sales accounting for 52% of group sales and 61% of operating profit.
Trading conditions continued the positive trend of 2021 in the engineering consumables segment.
This segment has shown good growth with increased turnover from the mining and manufacturing sectors.
In terms of valuation, Momentum Securities forecasts headline earnings per share (HEPS) of 1 764 cents for the 2022 financial year, and 1 910 cents for the 2023 financial year.
Hudaco industries is trading at 12 months forward PE of 8.06 times which falls below the peer average of 9.9 times. It is, therefore, trading at a discount to its peers and appears to be undervalued.
“Our target price one year forward is R183.30 and it has an upside of 22%. We have a buy recommendation on this stock, and we believe that it is stock to be added to your portfolio,” Mantome said.
The table below provides an overview of Hudaco Industries.
|Market cap||R4.38 billion|
|Enterprise value||R5.68 billion|
|1-year revenue growth||7.60%|
|1-year EBITDA growth||18.20%|
|Current share price||R146.25|
|One year target price||R183.30|