Matthew Vaight, manager of the M&G Global Emerging Markets Fund (GB00B3FFXV23), says South Africa's Imperial Holdings is creating value for shareholders, following a restructure.
"We think this transport-focused company has enormous potential to harness the economic development and rising wealth of Africa," says Mr Vaight. "It has a well established car retail and rental business that distributes leading brands such as Hyundai and Kia, as well as an extensive logistics arm.
We were attracted to Imperial initially by management's efforts to improve the company's returns. A new chief executive officer (CEO) embarked on a major restructuring programme, exiting the more unprofitable parts of the company such as aircraft leasing, banking and tourism. Not many CEOs in emerging markets are brave enough to do this. He then put the focus back on higher-returning businesses such as automobile distribution and logistics.
Imperial Holdings is now a market leader in the automotive and logistics sector in South Africa, and benefits from its concentration on products that are able to provide an attractive after-market revenue stream without the need to commit excessive amounts of capital.
The company has an excellent brand and product mix and is benefiting from rising wealth and increased demand for vehicles. Imperial's logistics network captures growing consumerism as it supports consumer goods businesses across many African countries.
Internal change such as restructuring can transform a company's performance. Withdrawing from capital-intensive activities that are not generating high returns and focusing on the most successful areas demonstrates good capital discipline. In many cases, companies take this step after a period of rapid expansion. Investors can be slow to recognise the long-term benefit of a new strategy, particularly if it involves shrinking and disposing of unprofitable businesses.
We look for companies that allocate capital efficiently to create value for shareholders, and are taking steps to get better and generate higher return on capital over time."
