In­victa, ENX Group, La­bat Africa, In­vestec Aus­tralia Prop­erty Fund, AB In­Bev

Financial Mail - Investors Monthly - - Contents - Marc Hasen­fuss

It’s prob­a­bly an op­por­tune mo­ment to re­visit ac­quis­i­tive small cap ENX Group. The com­pany has be­come a bit of a mar­ket dar­ling since new CEO Paul Man­sour — and a cou­ple of smart part­ners who were fresh from mak­ing a mint in the casino sec­tor — re­vamped the old Aus­tro list­ing.

Af­ter peak­ing at 255c in Fe­bru­ary last year the ENX share has bobbed around un­cer­tainly. The price re­turned to 249c in Novem­ber last year, but has since drib­bled down as the mar­ket re­assesses the ef­fect a markedly weaker rand will have on prof­itabil­ity (and po­ten­tial deal-mak­ing).

At the time of writ­ing the share was any­thing but sta­ble at 195c, and there seems ev­ery chance — small cap sen­ti­ment be­ing so fickle th­ese days — that ENX could shift lower. IM’s up­side as­sess­ment is based on the 195c share price, but our rec­om­men­da­tion is to re­main watch­ful and look to ac­cu­mu­lat­ing ENX scrip at lower lev­els.

There is not the most con­vinc­ing fun­da­men­tal un­der­pin at 195c — at least com­pared with the very mod­est earn­ings mul­ti­ples that now adorn so many in­dus­trial coun­ters in the JSE. Of course, the pre­mium in the share price is the pos­si­bil­ity of value and growth en­hanc­ing ac­qui­si­tions.

It’s early days, and not that easy to gauge the full po­ten­tial of the en­ergy and fuel busi­nesses that have been brought into the

ENX fold. But the year to end Au­gust re­sults cer­tainly sug­gests there is some op­er­a­tional trac­tion with a gross profit mar­gin of 29% and an op­er­at­ing profit mar­gin of 6%. The com­pany dis­closes the pre­tax re­turn on av­er­age tan­gi­ble net op­er­at­ing as­sets is a re­spectable 19%.

A divi­sional break­down shows the key power seg­ment achieved an op­er­at­ing profit mar­gin of 9% — which is en­cour­ag­ing if in­vestors reckon the thin mar­gins in the fuel divi­sion (R3m profit from sales of R310m) will fat­ten up as more op­er­at­ing as­sets are brought on­board.

ENX’s Pri­vate Power Sales ob­vi­ously played into a sweet spot when Eskom was un­der­go­ing its dis­rup­tive load shed­ding pro­gramme.

The fuel seg­ment only in­cluded re­cent ac­qui­si­tion Centlube’s con­tri­bu­tion for nine months. But the busi­ness looks promis­ing, gen­er­at­ing nine month rev­enue of R210m and ad­justed Ebitda of R8m.

If a hefty R13.7m loss of for­eign ex­change trans­ac­tions was stripped out then Centlube’s Ebitda would have come close to R22m.

The big chal­lenge for ENX in fi­nan­cial 2016 is deal­ing with the markedly weaker rand ex­change rate. Di­rec­tors con­cede a “sus­tained and rapid de­cline ver­sus our trad­ing cur­ren­cies will in­crease in­put costs which we may not be able to pass on to cus­tomers or may re­sult in a de­cline in vol­umes.”

But cur­rency pres­sure might also al­low ENX to ne­go­ti­ate ac­qui­si­tions of stressed com­peti­tors at bet­ter prices. In this re­gard it will be in­ter­est­ing to see what is brought to book in the months ahead — con­sid­er­ing the com­pany in­di­cated at fi­nan­cial year-end that its ac­qui­si­tion pipe­line looked “promis­ing”.

For what it’s worth, ENX di­rec­tors noted at the end of last year than the first quar­ter of trad­ing (Septem­ber through to Novem­ber 2015) had been pos­i­tive with the or­der book in the power seg­ment re­garded as healthy.

The next fi­nan­cial pe­riod will also in­clude re­cently ac­quired diesel gen­er­a­tor busi­ness Gen­mat­ics for the full 12 months of trad­ing. Di­rec­tors have in­di­cated that early trad­ing in this key ac­qui­si­tion has ex­ceeded ex­pec­ta­tions.

De­vel­op­ments at oil busi­ness Centlube also bear watch­ing in 2016. The com­pany has re­cently com­pleted the ExxonMo­bil take-on phase, and should man­age to grow vol­umes markedly.

Di­rec­tors re­main adamant Centlube will be­come a ma­te­rial con­trib­u­tor to group rev­enue and prof­itabil­ity in the years ahead.

Over­all, ENX finds it­self at an in­ter­est­ing junc­ture where the met­tle of man­age­ment will be tested op­er­a­tionally and strate­gi­cally. The in­terim re­sults will be telling, and per­haps re­in­force our BUY rec­om­men­da­tion.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.