EQS­TRA

Financial Mail - Investors Monthly - - Opening Bell -

Share price: 273c JSE code: EQS

HOLD THIS INDUSTRIAL SER­VICES COUNTER is one of the JSE’s more in­trigu­ing “deep value” propo­si­tions. Eqs­tra’s of­fi­cial tan­gi­ble NAV is over 600c/share — which sug­gests that the mar­ket is pric­ing in some di­a­bol­i­cal trad­ing con­di­tions ahead for a busi­ness that spans fleet man­age­ment, industrial equip­ment and con­tract mining.

IM un­der­stands a num­ber of en­ti­ties have pe­rused Eqs­tra’s as­sets in the past 18 months, but it was lit­tle-known ENX that even­tu­ally made a for­mal ap­proach. Its pro­posal to take over the fleet man­age­ment and industrial equip­ment busi­nesses is scrip funded, but it is in­ject­ing con­sid­er­able loan finance into Eqs­tra’s con­tract mining busi­ness, in which it will take a 20% stake and which will re­main as a sep­a­rately listed com­pany.

Much of the up­lift for Eqs­tra share­hold­ers de­pends on whether ENX can im­prove re­turns on the fleet man­age­ment and industrial equip­ment busi­nesses. There might be scope for bol­ster­ing mar­gins through more cost ef­fi­cien­cies, but lift­ing re­turns won’t be easy in the pre­vail­ing eco­nomic cli­mate.

How­ever, the ENX deal does ease gearing pres­sures, and man­age­ment might find that the new regime of­fers a more con­ducive en­vi­ron­ment for seek­ing out fur­ther growth op­por­tu­ni­ties. The bot­tom line is that Eqs­tra share­hold­ers will get highly rated ENX scrip in ex­change for their un­der­val­ued Eqs­tra paper. Eqs­tra is a big deal to bed down, so it may be some time be­fore ENX’s de­mand­ing earn­ings mul­ti­ples are jus­ti­fied.

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