Could be a steal
ARGENT INDUSTRIAL THIS STEEL COMPANY’S share price has been testing new lows over the past week. It’s hard to figure out why. There are a couple of obvious reasons: steel prices have been declining and are erratic and small cap shares (Argent is worth slightly more than R1bn) take the heat when markets get tricky.
But the business looks in good nick, its last results were sound and prospects seem fair. That makes Argent, at least on paper, look like one of the most undervalued small cap counters on the JSE. At just over 700c/ share last week it was way below its net asset value of 1127c/share.
Argent should also not be that affected by the steel price. About half its revenue comes from steel trading, the rest from much higher margin beneficiation. That affords it an operating margin in the region of 17%. With tight cost controls and little debt most of that flows through to the bottom line.
Where it has excelled over the past years, is in making good acquisitions. Some will be familiar to consumers: Jetmaster, Xpanda, Toolroom Services. Those could also be a weakness currently, with consumer spending under pressure – but that’s just part of the cycle.
It’s well placed on the edge of the large, currently unpopular, big steel producers and the consumer market, which will always need beneficiated steel products. Argent also supplies ready-mix concrete, for which there should be strong demand for a number of years as infrastructure projects commence. It also manufactures railway retarders. Spoornet is under pressure to upgrade SA’s rail network, so that part of the business should also do well.
So is this just a small cap suffering under current market conditions? Could be. However, investors should perhaps wait for interim results, due in a few weeks, to check all’s well at the company. One good sign is that the CEO and fellow directors have been avidly buying its share – they must see value.