Could be a steal

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.