Share price: R41,00 JSE code: IVT

Financial Mail - Investors Monthly - - Opening Bell -

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.

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