When the eco­nomic cli­mate is dif­fi­cult, prof­itabil­ity, de­pend­able cash flows and div­i­dends look es­pe­cially at­trac­tive

Financial Mail - Investors Monthly - - Contents -


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.

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