Spare a thought…
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.