By Sasha Naryshkine
Motus shares were listed on the JSE today, introducing a fresh name to the market’s Top 100 companies.
The company was unbundled from Imperial Holdings as part of a well telegraphed process, dating back to 2014. As of today, Imperial shareholders have the choice of owning a logistics business, Imperial Logistics, or Motus, a business that will be listed under speciality retailers. Motus operates in the automotive industry. A full 80 percent of its revenue is generated through motor vehicle retailing and rentals.
Motus is the exclusive motor vehicle importer of the Hyundai, Kia, Renault and Mitsubishi brands into South Africa. The company operates 23 different original equipment manufacturer (OEM) brands across 356 countrywide dealerships.
Its 19 other significant brands include Land Rover, Mercedes Benz, Jaguar, Volkswagen, Ford, Mazda and Toyota, covering a range of luxury to more affordable entry level motor vehicles. The majority of the dealerships are in Gauteng (177) and the Western Cape (65).
Motus’ market share is roughly 1 in every five new motor vehicles sold in South Africa – around 100,000 a year – with another 90,000 used vehicles. The South African new motor vehicle sales market peaked in 2006, with 714,000 vehicles sold that year.
In the international segment, Motus operates 112 dealerships in the UK and 30 dealerships in Australia. The company has embarked on expansion across these two territories, concluding a significant acquisition in each of these countries.
Its well-known motor vehicle-hire businesses are the global franchise Europcar and South African founded Tempest car hire, which caters for the budget market. These businesses are heavily geared towards the ebbs and flows of international tourism. According to the Motus pre-listing statement, 10.5 million tourists visited SA in the 12 months to June 2018. The company has a 25% market share in the rental market.
Another Motus leg is the aftermarket motor vehicle spare parts business, which houses franchised outlets such as Midas, as well as specialised workshops. In March this year Motus acquired 60% of ARCO, a Taiwanese wholesale distributor of automotive aftermarket parts.
The pre-listing statement lays out some of the possible strategies, including greater scale in the parts business by looking to acquire suppliers in mainly China and Taiwan, thus boosting margins.
Lastly, the smallest division by revenue (R2.16 billion of the group’s R77.66 billion total) but with far and away the highest profit margin of the four businesses is its Motor-Related Financial Services.
This business generates just over 23 percent of operating income. This division consists of the management and administration of warranty, service and maintenance plans, as well as fleet management services for corporate customers. The successes of this business in South Africa will be adapted to the UK and Australian markets.
There are some fascinating factoids in the pre-listing statement in which Motus points out the relative size and scale of the South African market.
In 2017, the International Organization of Motor Vehicle Manufacturers, known by the French acronym OICA, reported global motor vehicle sales of 96.8 million units. Of that, a mere 557,000 units were sold in South Africa, representing 0.58 percent of global market share. SA ranks 24th in the world in terms of new motor vehicle demand.
Two other interesting facts stand out: firstly something termed motorisation rate relative to population, measured in motor vehicles per 1,000 citizens.
The global average (measured in 2015) is 182 vehicles to 1,000 people. SA is below the global average at 176. But it is more than four times that of the African continent which measures 42 per 1,000.
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That South African figure is higher than China, which currently sits at 118, and India is almost unbelievable at 22 vehicles per 1,000 people. For perspective, the other two markets that Motus operates in are far higher with Australia at 718 and the UK at 587 vehicles per 1,000 people. Unsurprisingly the USA tops the list at 821 motor vehicles per 1,000 people.
This is clearly an opportunity in the long run for Motus, if the high road economic scenario plays out in South Africa both in terms of vehicles sold, as well as the aftermarket spares and more importantly financing.
The other interesting fact is the age of the South African motor vehicle fleet. If you are feeling deflated that your motor vehicle is a little tired, then perhaps you would be surprised to learn that the average age of the passenger car (numbering 7.17 million in total) in SA is nine and a half years old.
Commercial vehicles, with an average age of nine years and ten months make up the balance of the total of 12.21 million vehicles on the roads.
Again, the high road scenario represents great opportunities for a business such as Motus selling both new and newer used motor vehicles. Equally there is an opportunity for the spare parts business if motor vehicles are replaced at a slower rate.
From a valuations perspective the stock combined (Imperial Logistics and Motus as one Imperial Holdings) looks good value.
Imperial Holdings closed yesterday at R140.50, you have to go back to May of 2016 to find a similar share price. The 2018 Imperial Holdings annual report puts Motus HEPS at R10.27 and the Logistics business at R4.77.
Motus plans to have a dividend payout ratio of 45 percent of HEPS.
The stock is offering value given the many uncertainties washing across the South African landscape, politically and economically. Interest rates (a decision today), a fluctuating currency that makes planning difficult and impacts consumer affordability means that people hold off on what is a big-ticket purchase.
With some of the cheaper reliable brands in the marketplace, Motus has benefited over the last couple of years with consumers trading down.
There are also other risks to its business, if Elon Musk has his way with driverless fleets of battery-operated vehicles transported from city to city with Hyperloop-type technology.
Uber is mentioned as a reason for shorter rental periods, of course Uber drivers need to acquire their own vehicle and have it financed and serviced too, another opportunity at some level.
Brexit and the associated uncertainty of a post market deal (if any) of course is a short-term risk too.
