Share price: R41,00 JSE code: IVT
BUY INVICTA’S SHARE PRICE HAS TAKEN A battering, falling by over 40% since mid-2014. Share price weakness appears to be setting up the company, one of the JSE’s long-term star performers, as a buy.
In part, the price weakness relates to a 17% fall in headline EPS (HEPS) in the company’s six months to September 2014. It was its first big profit setback in over 15 years.
Factors beyond its control were at work in its two biggest divisions: Capital Equipment was hit by an agricultural equipment demand slump and Bearing Man by five months of strikes.
More significant in Invicta’s price weakness is a rights issue in which it raised R2,25bn in ordinary and R500m in preference share capital. The move upped issued ordinary shares 43% to 108m, closed two weeks before the 2014 year end and is the key part of a restructuring to ready Invicta for a foreign acquisition drive aimed at doubling non-SA revenue. It will seriously dilute HEPS in the 2015-16 financial year. The market has reason for caution.
Assuming headline profit growth of 20% — Invicta’s past decade average — it is on a 12-month forward PE of about 26, well above its five-year 17 PE average. The unknown factor concerns large foreign acquisitions, of which Invicta CE Charles Walters has said the group is positioned to execute one a year. There is little doubt big foreign acquisitions will come.
Buying Invicta on this probability requires a leap of faith in management, but on its record it is one worth close consideration.