Tu­ran­rounds: Which dog will have its day?

The in­dus­trial land­scape, in parts, looks like a sprawl­ing junk­yard. Is it worth pick­ing through some of the smoul­der­ing wrecks?

Financial Mail - Investors Monthly - - Front Page - Marc Hasenfuss

TORRE IN­DUS­TRIES Share price: 139c JSE code: TOR BUY THIS IN­DUS­TRIAL SUP­PLIES

con­glom­er­ate has been ham­mered in the market over the past 12 to 18 months.

But when the re­sults to end-June were pub­lished, the dam­age (es­pe­cially to mar­gins and the bal­ance sheet) was not as bad as the share price in­di­cated. It seems likely that a degeared Torre, after a pe­riod of much-needed in­tro­spec­tion, will start hunt­ing niche ac­qui­si­tions again.

The over­all im­pres­sion is that the new man­age­ment team, un­der deputy ex­ec­u­tive chair­man Jon Hil­lary, has re­stored a re­as­sur­ing calm to Torre’s op­er­a­tions. A fi­nal div­i­dend dec­la­ra­tion cer­tainly hints that the ex­ec­u­tive is fairly con­fi­dent.

The re­cent ac­qui­si­tion of Top Class Au­to­mo­tive (for a nom­i­nal sum of R1) and Trans­former Chem­istry Ser­vices for R17m sug­gests any ac­qui­si­tion drive will be highly se­lec­tive and cau­tiously ex­e­cuted.

Op­er­a­tionally, it seems the right knobs have been tweaked, with an im­proved gross mar­gin of 37% (pre­vi­ously 34%) and op­er­at­ing mar­gin of 5% (4.2%).

The big­gest oper­a­tional hub, the parts and com­po­nents di­vi­sion, looks good, with sales up 3% to R907m and prof­its up 14.5% to R63m. Turn­around ef­forts are gain­ing trac­tion at the an­a­lyt­i­cal ser­vices and cap­i­tal equip­ment di­vi­sions. If the in­terim num­bers show a con­tin­u­a­tion of these trends, Torre could find favour with in­vestors.

PSV Share price: 46c JSE code: PSV HOLD THIS IN­DUS­TRIAL EN­GI­NEER­ING

firm’s op­er­a­tions span in­dus­trial sup­plies (steel, pip­ing, in­dus­trial tools and con­sum­able sup­plies) and spe­cialised ser­vices (cryo­genic and gas sys­tems, as well as the sup­ply and in­stal­la­tion of geosyn­thetic lin­ings).

Its prospects are hin­dered by a lack of ap­pro­pri­ate em­pow­er­ment cre­den­tials.

PSV is trad­ing un­der a cau­tion­ary re­lated to a pos­si­ble BEE deal. Po­ten­tial em­pow­er­ment part­ners may hold out for the best terms, with PSV clearly need­ing to clinch a BEE deal. But the com­pany has the po­ten­tial to un­lock medium-term value.

Even though turnover crimped al­most 14% to R210m in the past fi­nan­cial year, there was a strength­en­ing in gross mar­gins to al­most 18% and op­er­at­ing costs were slashed by nearly half. The after-tax loss from con­tin­u­ing op­er­a­tions was re­stricted to R1.15m, from the R19.35m loss recorded in the pre­vi­ous fi­nan­cial year. Cur­rent li­a­bil­i­ties dwarf cur­rent as­sets by R10m.

A di­vi­sional re­view shows that PSV has a few feisty op­er­a­tions (Om­ni­rapid and African Cryo­gen­ics stand out), and hope­fully the com­pany will at least break even at an after-tax level in the in­terim pe­riod.

An im­proved per­for­mance by PSV should at­tract ei­ther a BEE part­ner or a preda­tor — but hope­fully not a cheap-shot man­age­ment buy­out and a delist­ing.

SOUTH OCEAN HOLD­INGS Share price: 50c JSE code: SOH SELL THIS ELEC­TRI­CAL CA­BLE

spe­cial­ist and light­ing dis­trib­u­tor has fiz­zled hor­ri­bly since com­ing to the market 10 years ago. The profit switch-off at SOH seems to be com­pany-spe­cific, not due to broader eco­nomic is­sues, as ri­val ARB Hold­ings (an elec­tri­cal equip­ment and light­ing prod­ucts spe­cial­ist) has con­sis­tently churned out prof­its and paid div­i­dends.

On pa­per, SOH might look an at­trac­tive deep-value propo­si­tion. Tan­gi­ble net as­set value was stated as 314c/share at the end of June, more than six times the rul­ing share price. But in­vestors need to un­der­stand SOH’s oper­a­tional quandary.

The ca­bles busi­ness op­er­ates on a sliver of an op­er­at­ing mar­gin, its in­terim turnover of R626m whit­tled down to just R8m. The Radiant light­ing busi­ness gen­er­ated R142m in turnover — but this blew out into a R10m loss, un­der­lin­ing just how badly SOH over­paid for this busi­ness.

Im­me­di­ate prospects for the light­ing busi­ness also ap­pear dim. Con­sid­er­ing how well (rel­a­tively speak­ing) its ARB-owned ri­val Eurolux is far­ing, Radiant’s market share must be un­der se­ri­ous threat.

There are far more at­trac­tive deep­value propo­si­tions scat­tered across the JSE, where the “un­lock” is far more ap­par­ent (and im­me­di­ate).

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