Value Logistics issues dire trading update

Value Logistics is facing a tough year and has warned that its earnings are likely to be between 70% and 90% lower than last year. Image: Fleetwatch

But on August 29 Value announced a closed period share buy-back programme, which started in September and will finish in mid-October, when the company intends publishing its interim numbers. It intends buying back shares to the maximum total value of R4,3m.

Now R4,3m is not a big amount relative to Value's market capitalisation of R914m. But the proposal was enough to shove the Value share price back over 440c.

The question investors will ask is this: does the share buyback mean directors think Value could be steered quickly out of a ditch?

There is no easy conclusion. Since listing in 1998 Value has incurred only one serious profit setback, and that was in 2002, when technology upgrades went awry.

There is scant encouragement to be taken from the trading statement, citing high unemployment rates, consumer debt and protracted strike action as factors weakening demand for its services. No doubt e-tolls were in that mix too.

Rate pressures

Certainly there will be evidence of margin pressure as Value admitted having to contend with unsustainable rate pressure made worse by declining volumes and activity in the various divisions.

Directors noted that statutory and inflationary increases had resulted in operating and overhead costs escalating disproportionately to revenue. This probably explains Value's admission that loss-making contracts have been "addressed". Whether that means renegotiated or culled will be evident in the interim results.

If the buy-back is reigniting sentiment for Value then the annual report's disclosure that capital expenditure for the 2015 year has been budgeted at around R190m is also noteworthy - especially as this will be mainly funded by internally generated cash flows.

Still, it might be safer for investors to sit on the sidelines until after the release of the interims next month. An assessment of exactly how badly the business has stalled is surely prudent.

Chief Executive Steve Gottschalk's annual review suggests the current trading environment offers Value an opportunity to seriously select potential acquisitions.

Such a move might more convincingly underline Value's long-term prospects than a small buy-back programme.

Source: Financial Mail via I-Net Bridge