Sit­ting on cash

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS

RE­CENT LIST­INGS ON the AltX have be­come a risky mine­field for in­vestors, but there’s still some po­ten­tially good stuff there – if you look hard enough. One such pos­si­bil­ity seems to be abe Construction Chem­i­cals. It only listed a year ago but is ac­tu­ally an old com­pany, founded in 1932. It’s had var­i­ous large cor­po­rate own­ers, in­clud­ing Mur­ray & Roberts (which it sup­plies ma­te­ri­als to), but be­came in­de­pen­dent and listed last year af­ter ex­ist­ing share­hold­ers bought all the eq­uity.

Most at­trac­tive is that abe is po­si­tioned on the right side of the in­fra­struc­ture and construction boom. It makes and sup­plies spe­cial­ist prod­ucts to the build­ing, civil en­gi­neer­ing and build­ing main­te­nance in­dus­tries. Though the bulk of its rev­enue comes from sales to the construction in­dus­try, it has use­ful di­ver­si­fi­ca­tion in what it calls re­sellers, re­tail­ers to the do­mes­tic construction in­dus­try and DIY out­lets. Fairly small (9% of rev­enue) but promis­ing ex­ports to sub-Sa­ha­ran coun­tries round off its port­fo­lio.

Maiden re­sults fell marginally short of its pre-list­ing rev­enue tar­get but ex­ceeded the head­line earn­ings per share fore­cast. The com­pany is cash flush, with cash on hand grow­ing from R4,3m to R19,7m and – sur­pris­ingly for an AltX com­pany – it pays a div­i­dend.

Some of the cash will prob­a­bly be chan­nelled into ac­qui­si­tions this year. That seems a good strat­egy: it’s a good time to grow with what looks like ro­bust build­ing and construction ac­tiv­ity for at least the next few years. But it will be im­por­tant to make the right ac­qui­si­tions. But th­ese guys know the in­dus­try, so there shouldn’t be a prob­lem there.

Like many AltX list­ings, its share price has been pun­ished, down more than 40% over the past year. But ear­lier cap­i­tal losses are be­ing made up quickly, with its share price up more than 30% over the past month, 15% of that in the week af­ter its re­sults were an­nounced.

And se­nior man­age­ment, in­clud­ing CEO Stan­ley Stacey, have been buy­ing the share, al­ways a pos­i­tive sign. This could be one for in­vestors bullish on build­ing and construction and brave enough to ven­ture into small caps.

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