CMH rides new car boom while Astral profits surge in volatile poultry cycle

CMH’s share price is up 35% in the past year and Astral Foods’ is up 39%, so both names have been excellent local investments in recent times. CMH released detailed numbers and an analyst presentation for the year ended February 2026, so we will focus our efforts there. At Astral, we only have a further trading statement to work with.

It’s worth remembering that both companies have cyclical factors that underpin the results. Just one example is reduced interest rates and how this boosts car sales at CMH. It’s therefore always important to focus on the future prospects and avoid extrapolating previous returns.

CMH: From disruptee to disruptor

Combined Motor Holdings or CMH is an automotive group that has historically represented a wide selection of well-known vehicle brands. Given the disruption we’ve seen to the sector from the influx of Chinese and Indian vehicles, it would have been reasonable to assume that CMH might struggle to maintain its market position.

Instead, what we’ve seen is an excellent response to the threat. CMH has decided to ride the wave rather than fight it, making tough decisions around the mix of brands being represented by the group.

This approach has paid off, with CMH giving investors exposure to the rapid adoption of brands like Foton, Haval and Mahindra. This has come at the expense of long-standing names like Nissan and Ford in more affordable segments, as well as the likes of Volvo in the premium segment. Things are changing quickly in the automotive industry and CMH seems to be well positioned for it.

That’s just as well, since the motor retail and distribution business contributes just under half of group profit. Car hire is good for 29%, with the rest coming from financial services and other business lines. The contribution from motor retail and distribution jumped from 40% to 49% in the past year, which tells you that things are going well in that segment.

The growth was defined by the mix of new vs used sales. The 8% increase in used car unit sales would be impressive enough under normal circumstances, but it looks positively pedestrian compared with a spectacular 23% growth in new car unit sales.

This comes at a cost though: new car sales achieve lower gross margins than other sources of revenue. The change in shape of CMH’s business drove a decrease in the gross profit margin from 18.6% to 17.2%.

Even with the margin pressure, the 18.6% increase in group revenue was a great outcome for shareholders. Thanks to expense control offsetting much of the gross margin issue, CMH’s operating profit increased by 17.1%.

Return on shareholders’ funds increased substantially from 21.7% to 27.1%. This means that shareholders should feel good about CMH reinvesting their capital. With cash resources ballooning to nearly R1.15-billion (vs 2019 to 2025 when it ranged between R660-million and R954-million), there’s plenty of capital available for CMH to allocate.

They’ve flagged various uses for the cash, including the expected growth of the Foton import and distribution business. Interestingly, CMH’s board appears to have lost interest in share repurchases, having been negatively surprised by the limited take-up by investors of a recent share buyback process.

I think the point they are missing is that buybacks are best suited to more difficult times. When things are going well, investors will be less inclined to sell their shares to the company. Instead of being disappointed by the share buyback, the board should take it as a compliment and remain alert to opportunities to repurchase shares if the market shows any signs of weakness.

Astral Foods: Poultry paradise

The chicken industry is well known for being a treacherous place for investors. Volatility is a feature rather than a bug, with paper-thin margins that are vulnerable to a host of potential internal and external factors.

But when things go well, they go really well – and for a while investors almost forget just how tough things can get. For the six months to March 2026 Astral Foods grew HEPS by between 450% and 470%. You won’t see percentages like this very often!

To generate results like these, Astral needs a number of things to go their way. This includes stronger selling prices and improved margins thanks to manageable input prices. They also need to be lucky enough to avoid any major business disruptions, with avian flu as the usual reason that investors in this sector get hurt.

The share price moves are never as amplified as the change in earnings. The market is wise to how this sector works, so the great periods are treated with as much suspicion as the unusually poor periods.

Given the importance of this protein in the South African consumer market, it’s great to see decent profits in this sector. DM