Knock on wood
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.