Sitting on cash
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.