In­ter­est­ing value propo­si­tion

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

PSV HOLD­INGS IN­DUS­TRIAL EN­GI­NEER­ING com­pany PSV Hold­ings looks a most in­ter­est­ing propo­si­tion for those pun­ters with a pen­chant for seek­ing out value among smaller cap stocks. At the time of writ­ing PSV was trad­ing at 40c on the JSE, giv­ing the group a mar­ket cap­i­tal­i­sa­tion of around R108m. At those lev­els there are a cou­ple of mat­ters pun­ters may want to con­sider. • In­terim profit for the half-year to endAu­gust was R12m, trans­lat­ing into core op­er­at­ing earn­ings of 6c/share. With a con­firmed or­der book of R150m to hand it may not be amiss to spec­u­late that PSV could – notwith­stand­ing the tougher econ­omy – con­ser­va­tively gen­er­ate earn­ings of 10c/share. That would put PSV on a mod­est for­ward earn­ings mul­ti­ple of four times. PSV has a tan­gi­ble net as­set value of 40c/share. In other words, at cur­rent lev­els in­vestors are buy­ing the as­sets of the busi­ness and get­ting the profit po­ten­tial for free. Nat­u­rally, the in­creas­ingly dour eco­nomic out­look has damp­ened sen­ti­ment for in­fra­struc­ture-aligned stocks on the JSE – es­pe­cially those listed on the AltX. But the beauty of PSV is that it pro­vides es­sen­tial ser­vices. When a pump or a valve breaks it usu­ally has to be re­placed or fixed – and quickly, too. Fur­ther ben­e­fits could flow from Gov­ern­ment in­fras­truc­tural projects, as well as from Eskom’s es­sen­tial spending.

Some pun­ters may fret about its in­terim cash flow, which turned neg­a­tive af­ter in­vest­ments in in­ven­to­ries and debtors, plus a R10m in­jec­tion into its APE Pumps and Dasher sub­sidiaries. But if PSV can main­tain its trad­ing mar­gin at around 28% its sec­ond half cash flows should be far more re­as­sur­ing. Net cash on hand is worth 5c/share – al­though div­i­dends are un­likely over the short term.

Worth ac­cu­mu­lat­ing, me­thinks…

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