Our opinion on the current state of BARWORLD(BAW)Barloworld (BAW) is an international supplier of heavy earth-moving equipment and vehicles, serving sectors such as mining, agriculture, infrastructure, power, automotive, and logistics. The company's well-known brands include Caterpillar, Avis, Massey-Ferguson, and Challenger. Barloworld operates in 24 countries, particularly in Southern Africa, Russia, and other emerging markets. Its wide range of operations and geographical reach help to insulate it from recessionary pressures.
Recently, Barloworld sold its Spanish and Portuguese operations for about R2.5 billion, which it is now planning to invest in Mongolia through the acquisition of the US-owned Wagner Asia Group. However, the ongoing Ukraine crisis has made it more difficult for the company to receive payments from customers in Russia, and it has increased the costs of certain commodities. Despite this, Barloworld asserts that it has enough resources to manage the situation, although its share price has fallen sharply as a result.
In its results for the six months ending 31st March 2024, Barloworld reported an 8% decrease in revenue and an 8% decline in headline earnings per share (HEPS). The company's net asset value (NAV) increased by 9% to 9111c per share. The group’s revenue of R19.2 billion was down 8% year-on-year, driven by a 24% decrease in Vehicle Trading (VT), a 10% drop in Equipment Southern Africa, and a 3% decline in Ingrain. However, these declines were offset by a 43% increase in revenue from Barloworld Mongolia, reflecting the strength of its operations there.
In a trading update for the 11 months ending 31st August 2024, Barloworld reported revenue down by 7.4% and net debt reduced from R6.3 billion to R3.5 billion. The company attributed the challenging trading environment in its southern African portfolio to being somewhat balanced by the expansion in Mongolia, driven by government-led infrastructure projects and increased demand for Mongolia's minerals and resources, especially from China.
Technically, the share experienced a sharp fall in March 2020 due to COVID-19, followed by a sideways movement in an extended "island formation." However, there has since been an upside breakout from the island, and the share has broken through its long-term downward trendline. On 9th April 2024, the share gave a strong on-balance-volume (OBV) buy signal and has been rising steadily since. At its current price and with a P/E ratio of 7.66, the share appears to offer good value.
Nevertheless, the situation in Ukraine and Russia remains a critical factor for Barloworld. On 13th September 2024, the company announced that it might be in violation of US sanctions against Russia due to exports made to its Russian subsidiary. This news caused the share price to drop sharply. While the stock still appears undervalued, further developments regarding US sanctions could have a major impact on its future performance.
