Knock on wood

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

WILLIAM TELL WOOD­WORK­ING SPE­CIAL­IST William Tell is cur­rently trad­ing at around a 60% dis­count to its stated net as­set value of 165c/ share as at end-June 2008. Un­der nor­mal cir­cum­stances such a dis­count placed on a prof­itable and cash gen­er­a­tive com­pany would cer­tainly stir some in­ter­est from value in­clined pun­ters. Its price has also seen a steep de­cline – fall­ing from 550c in Novem­ber 2007 to un­der 100c/share.

How­ever, William Tell may not be the bar­gain some Fin­week read­ers reckon the share rep­re­sents at cur­rent lev­els on the JSE. The group’s re­cently pub­lished an­nual re­port makes much of an unan­tic­i­pated stalling in busi­ness lev­els and crimp­ing of trad­ing mar­gins – re­plete with rather omi­nous ref­er­ences to in­creased stock­hold­ings, in­creased ca­pac­ity at com­peti­tors and higher in­put costs.

Direc­tors said while in­dus­try ca­pac­ity had been re­duced (with three plants clos­ing down and im­ports re­stricted by rand weak­ness) it would be un­re­al­is­tic to ex­pect earn­ings to scoot back up to the lev­els seen in the first half of its 2008 fi­nan­cial year.

While William Tell out­lined some proac­tive steps to re­strict pro­duc­tion costs, the tighter econ­omy since its fi­nan­cial year-end is clearly squeez­ing group op­er­a­tions. A trad­ing up­date re­leased just af­ter its an­nual re­port sug­gests in­terim earn­ings will be be­tween 80% and 90% lower than the buoy­ant first half of last year. That means half-year earn­ings will be around 1,7c to 3,5c/share.

With direc­tors ad­mit­ting the “ad­verse con­di­tions af­fect­ing” the wood-based panel in­dus­try are ex­pected to con­tinue in the cur­rent fi­nan­cial year, one won­ders if William Tell share­hold­ers can even be­gin to en­ter­tain no­tions of 10c/share for the year to end-June 2009. So while its his­toric earn­ings mul­ti­ple is less than five times, its for­ward earn­ings mul­ti­ple may be be­tween 12 and 15 times. As such, there seems plenty of scope for the share to drift in a zone of un­cer­tainty – es­pe­cially if ac­tiv­ity in SA’s build­ing sec­tor slows markedly dur­ing the re­main­der of 2008.

All things con­sid­ered, it may be bet­ter to wait this one out.

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