BUY, HOLD, SELL
When the economic climate is difficult, profitability, dependable cash flows and dividends look especially attractive
Share price: 400c JSE code: ART
BUY ARGENT IS THE CLASSIC “DEEP VALUE” play, but with a difference — Argent, unlike other industrial counters that trade at deep discounts to tangible value, is consistently profitable, has a relatively unstressed balance sheet, churns reliable cash flows and (wait for it) pays dividends.
After the release of solid results for the year to the end of March, Argent’s shares trade on a trailing earnings multiple of close to six and offer a rather nifty dividend yield of 4,5%. Cash flows from operations equate to over 100c/share, which suggests that there is a reassuring performance underpin to the stated net asset value of just over R13/share. IM estimates tangible NAV lower, at R11/share, but this still means that the share price is offering a huge discount.
Detractors might argue that, aside from selling off a few noncore properties, Argent has not done enough to unlock the underlying value for shareholders. That argument is not completely unjustified, especially since share buy backs, an obvious ploy to reinforce value, have been less than half-hearted. But management might also be prudent in not selling off assets on the cheap at a time when the industrial cycle looks rather vulnerable.
What is encouraging is a willingness to seek out new opportunities as seen in the recent acquisition of UK-based manufacturer of warehouse doors OSA for about R120m. It makes about R8m a year. It will enhance earnings for Argent and offer a much-needed extra dollop of rand hedge profits.