Measure your dreams…
INVICTA (market value: R1 800m) has informed investors in a trading update that its profit for the six months to 30 September was between 26% and 31% better than in the corresponding period last year. For the year to 31 March 2008, the group – which is particularly known for its agencies supplying bearings to the industry – achieved earnings of 343c/share. Thanks to its latest report – with the news everything is still going well – it’s not unreasonable to predict total earnings of 400c/share for the full year to 31 March 2009.
Invicta’s shares are currently trading at 2300c, less than six times the expected profit per share for the current year. It’s traditionally rather stingy with its dividend and investors shouldn’t expect more than 40% of the profit or 160c as a cash distribution. The first two norms at which an unlisted company can be valued (with Invicta as an example) are an earnings multiple of 6 and a dividend yield of around 7%.
For the year to March 2008, Invicta recorded turnover growth of 34% and its return on equity was a healthy 29%. Operational cash flow made 80% of the declared profit. Those are three further benchmarks by which an unlisted company can be gauged. Investors and prospective owner-businessmen will find it difficult – in fact, very difficult – to comply with those five benchmarks.
Over the past year Invicta’s price fell from 3100c to the current 2300c/share, which is dirt cheap and better than any idea of quickly starting up a business or buying one yourself. Another advantage is that Invicta’s shares trade freely on the JSE and it has a good management team, which does all the work. Sometimes it’s better to buy someone else’s business than live out your dreams of running your own coffee shop.