Regional volatility hurts Super Group
Larry Claasen
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Industrial Correspondent
INVESTMENT house Merrill Lynch says it has downgraded transport and logistics company Super GroupÆs earnings outlook for the year based on the problems experienced by the companyÆs cross-border operations.
Merrill Lynch said in a report that the trading and regulatory environment in Africa, specifically in Zimbabwe, was volatile and no improvement had been reported since the second half of the past financial year.
Merrill Lynch said that as there were no ôcatalystsö for driving an improvement in the environment, it expected the operation to incur a loss in this financial year.
Super Group CEO Larry Lipschitz said in May that the turmoil in Zimbabwe was hurting the groupÆs performance.
Besides the expected loss coming from the cross-border business, the number of effective weighted shares in issue was forecast to be 384-million, 5% higher than last year.
The investment house said the granting of ôliberal share optionsö was the main reason it expected a dilution in earnings a share.
Merrill Lynch reduced its forecast headline earnings a share from R1,41 to R1,32 based on the share dilution and its cross-border problems.
Merrill Lynch said that although the number of Super Group shares in issue could grow as much as 8,5- million, the group may choose to buy shares in the open market rather than issue new shares.
The bought shares would then be consolidated, resulting in fewer shares in issue.
While the cross-border business and the share dilution weighed down on the group, the linking of management bonuses to improving cash flow was welcomed.
Merrill Lynch said: ôThe poor cash quality of earnings has been the main investment concern.
ôAn improvement will be viewed as positive.ö
Super GroupÆs share price closed at R11,40 yesterday.
Merrill Lynch valued the transport company at R12,40 a share.
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