Not on the skids
UNBUNDLED FROM Tiger Wheels, Tiger Automotive was listed separately in December 2006. Tiger Wheels, which owns manufacturing operations in South Africa and Germany, remains listed and the two still have the same controlling shareholders.
Well-known SA driver Eddie Keizan used his purse from winning the Formula 5000 championship to buy into the business in 1972. Active ever since, he retired as executive chairman when the listings were split and is now non-executive chairman. Bidvest bought a 17% stake – since increased to 20% – in 2005.
There are now 35 owned and 14 franchised Tiger Wheel & Tyre outlets in all major areas of southern Africa, holding a significant share of the replacement passenger tyre and wheel business. There are also wholesale businesses in Britain and SA.
The prelisting statement disclosed that revenue increased from R750m in the year to June 2004 to R954m in 2006. Over that period operating profit rose from R52,6m to R92,8m and headline earnings per share from 62c to 104c. Though poor deliveries of tyres from Japanese supplier Yokohama hit the wholesale units, the interim to December reported revenue up 10% to R536m and HEPS up 15% to 61c – but cautioned that earnings gained from lower finance and tax charges.
MD Keith Rivers says that while the second half is usually less profitable, 12-month earnings should be “slightly” up, though margins are being squeezed by tough competition. Other adverse factors include the cost of opening new outlets and a 16,5% anti-dumping duty on some Chinese imports.
On the other hand, Tiger Auto has R100m in cash and is confident that SA’s burgeoning vehicle population will ensure steadily growing demand.
After listing in early March the share traded in a range between 1 300c and 1 450c. Disappointment with the interim pushed it down to 1 100c. It has since regained 60c and, with a market cap of R690m, is almost as big as Tiger Wheels (R774m).
If HEPS grow by only 5% for the year, the forward price:earnings multiple is only 10,5 times. With its strong cash position, Tiger Auto should be able to pay reasonable dividends. Negative reaction to the interim figures may have been overdone and it could be a good medium-term recovery prospect.