Long record of value and an in­ter­est­ing fu­ture too

Financial Mail - Investors Monthly - - Analysis -

f the mar­ket was a kin­der place, then low-key con­sumer brands dis­trib­u­tor Nu-World Hold­ings would be much more ap­pre­ci­ated for its de­pend­able track record since list­ing in the late 1980s — even if earn­ings in re­cent years have see-sawed.

Judg­ing by the in­terim re­sults

Ito end-Fe­bru­ary, the op­er­at­ing en­gine is still hum­ming re­as­sur­ingly. Cash flows churn nicely, the bal­ance sheet is rock solid and there’s still a de­cent trad­ing mar­gin. Div­i­dends have also flowed con­sis­tently over the decades, even if there might be cause to query the main­tain­ing of a con­ser­va­tive div­i­dend cover of more than three times.

But, as the com­pany’s mod­est earn­ings mul­ti­ple shows, the mar­ket is not com­pletely en­am­oured with this Steady Ed­die. Ad­mit­tedly the con­sumer sec­tor is un­der pres­sure with in­ter­est rates hav­ing been ratch­eted up a tad, which will ham­per Nu-World. Then again, de­mand is fairly re­li­able as the com­pany does dis­trib­ute largely es­sen­tial house­hold items — and not all of these can be deemed “big ticket” items. In­terim turnover growth to end Fe­bru­ary was 5% — fairly sprightly un­der the cir­cum­stances. Bot­tom-line growth came cour­tesy of man­age­ment’s skill in han­dling the brand port­fo­lio, which is clearly ev­i­dent in the im­proved 5,5% mar­gin (pre­vi­ously 5,3%).

There’s not much for­ward look­ing com­ment on the in­terim num­bers, but there’s noth­ing to sug­gest that full year earn­ings won’t come in around 380c/share (pre­sum­ing mar­gins don’t turn brit­tle in the sec­ond half if im­ported costs rise).

For value in­vestors, there’s much to pon­der at Nu-World. What will pro­vide ex­tra in­trigue is that the com­pany dis­closed ear­lier this month that stal­wart share­holder Old Mu­tual had cut its stake from 45,76% to 20,99%. This ap­pears to have al­lowed a new in­flu­en­tial share­holder to emerge in the form of Wild Rose Cap­i­tal, which has taken a 15,5% stake. Un­for­tu­nately the mys­te­ri­ous Wild Rose is not an in­vest­ment en­tity that rings too many bells in the mar­ket. Even a Google search pro­vides not so much as a clue to the busi­ness or the iden­tity of its prime movers.

But you have to be a “be­liever” in Nu-World’s po­ten­tial in the longer term to snag a 15,5% stake (worth close to R85m) in one fell swoop.

Vu­nani Se­cu­ri­ties small to mid cap an­a­lyst An­thony Clark, one of the few pro­fes­sional mar­ket watch­ers to keep tabs on Nu-World, has de­bated whether the sig­nif­i­cant change in share­hold­ing might trig­ger “out­side cor­po­rate ac­tiv­ity”.

He ar­gued: “When a ma­jor and long-term in­sti­tu­tional share­hold­ers nearly halves their stake . . . they must have been aware or sur­mised that some form of pos­si­ble value up­lift might come from selling their stake to an out­side party.” Clark may have a point, remembering Bid­vest’s op­por­tunis­tic snatch­ing of Nu-World’s ri­val Amal­ga­mated Ap­pli­ances a few years ago.

Cer­tainly Nu-World’s value

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