Sun City's owner, Sun International, is one of the companies most at risk of financial distress, according to a new report by Intellidex.
  • A new report by the research group Intellidex has assessed the financial risk South African companies are facing, as the Covid-19 crisis heaps more pressure on businesses.
  • Unsurprisingly, hotel groups and construction companies are among those deemed most at risk.
  • But the list of the "safest" companies includes surprises, including two major miners and a packaging company. 
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The Covid-19 pandemic has cranked up the pressure on many South African companies, particularly those already struggling with debt and a harsh economic landscape before the crisis.

For some, it has pushed them over the edge – with Edcon, Comair and others already filing for bankruptcy protection during lockdown.

READ | These SA businesses may not have survived lockdown

A new report, compiled by the capital markets research group Intellidex, has analysed the financial risk that South African listed small- and mid-cap companies are currently facing.

Each company was analysed in terms of a list of risk factors, including:

Business risk, including how much risk its industry is facing, as well as how sensitive the company’s operating profit is to falling revenue (companies with high fixed costs and lower margins will suffer more, as well as their debt burdens.

  • Liquidity risk: A company’s individual working capital.
  • Short-term debt risk: A company’s ability to repay its short-term interest-bearing debt.
  • Long-term debt risk: The ability to meet all of its debts.
  • Management risk: A subjective assessment of management’s pedigree in the view of Intellidex analysts, “thus its ability to navigate business stress induced by Covid-19”.

Companies were scored from 0 to 5 – with a lower score indicating higher risk.

The analysis yielded some surprising results, with companies in a single industry showing vastly different degrees of financial strain.

For example, among retailers, the report found that Woolworths (with a rating of 1.79) was at greater risk of financial distress than Massmart (1.96) – the embattled owner of Makro and Game, which was forced to close Dion Wired.

Woolworths lost billions on its Australian venture David Jones – and had to take on a major debt burden in an effort to save that business.

Woolworths, which could at least trade during the lockdown, is also at a much higher risk of financial distress than some of its peers like Mr Price (3.57) and Truworths (3.07), which had to close their doors for weeks. 

(Lower scores indicate a higher risk). Source: Intellidex

Shoprite (3.39) has a higher score than Pick n Pay (2.68), the report shows.

At high risk of financial distress:

The report found that construction-related companies were among those businesses at highest risk of financial distress, with Aveng scoring 0.89 (lower numbers reveal greater risk),  Calgro M3 (0.54) and PPC (0.71).

Sun International (0.54) received one of the poorest risk scores – even worse than the horse racing company Phumelela (1.61), which has filed for bankruptcy protection.

The tech companies Adapt IT (0.98) and EOH (0.63) also received very bad scores, and are deemed at high risk of distress.

Other companies that are deemed high risk included City Lodge (1.88), Tongaat Hulett (1.43), AdvTech (1.52) and Life Healthcare (1.61).

The safest businesses

On the other side of the spectrum, Intellidex deemed a couple of companies very low risk – thanks mainly to strong balance sheets.

Among them are the packaging group Bowler Metcalf (4.20) and Italtile (4.20), as well as the mining companies Kumba (4.64) and African Rainbow Minerals (4.46) – which have higher scores than Vodacom (3.39) and MTN (2.32).

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