Spare a thought…

Finweek English Edition - - Companies & Markets - MARC HASENFUSS

METAIR IN­VEST­MENTS AU­TO­MO­TIVE COM­PO­NENT MAKER Metair In­vest­ments has just about halved in value on the JSE since end-May. Un­der­stand­able per­haps, since South Africa’s au­to­mo­tive sec­tor isn’t ex­actly hot to trot at the mo­ment – here or over­seas.

The prog­no­sis for Metair specif­i­cally isn’t that great ei­ther, with a re­cent trad­ing up ad­vis­ing earn­ings for the six months to end-June would be be­tween 30% and 40% lower. That trad­ing dip comes cour­tesy the rand’s de­pre­ci­a­tion against ma­jor trad­ing cur­ren­cies plus ris­ing com­mod­ity prices. Metair’s cur­rent pric­ing ar­range­ments with cus­tomers only al­lows for re­cov­er­ing for­eign ex­change losses and com­mod­ity price in­creases ret­ro­spec­tively.

But Metair is in ne­go­ti­a­tions with cus­tomers to amend its ex­change rate and com­mod­ity pric­ing poli­cies “to al­low for a more re­spon­sive adjustment to sell­ing prices”. Suc­cess­ful dis­cus­sions with cus­tomers could see Metair – pro­vided own equip­ment man­u­fac­tur­ing pro­duc­tion vol­umes are main­tained and no fur­ther rand de­pre­ci­a­tion – re­coup­ing the in­terim ex­change rate un­der-re­cov­ery in the sec­ond half. In that re­gard we’re sure we don’t have to re­mind read­ers what’s hap­pened to the rand (and com­mod­ity prices) over the past few weeks.

There are other – com­pany spe­cific – points to con­sider at Metair. The busi­ness is a well-man­aged man­u­fac­turer of a wide range of well-known com­po­nents, rang­ing from bat­ter­ies to head­lights to shock ab­sorbers to heat/cool­ing parts. The prod­ucts en­joy sig­nif­i­cant mar­ket share in their seg­ments and sup­ply not only new ve­hi­cles man­u­fac­tured in SA but also the re­place­ment mar­ket and the ex­port mar­ket (col­lec­tively ac­count­ing for nearly 40% of turnover).

While Gov­ern­ment’s Mo­tor In­dus­try De­vel­op­ment Pro­gramme re­mains an over­rid­ing risk, you get the sense that Metair’s man­age­ment is proac­tively deal­ing with in­dus­try chal­lenges. In fact, we wouldn’t rule out Metair mak­ing se­lected ac­qui­si­tions in the cur­rent en­vi­ron­ment.

As an in­vest­ment op­tion we reckon Metair is an un­der­val­ued busi­ness that can be ac­cu­mu­lated on weak­ness – if buy­ers are pre­pared to take a longer-term view.

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