Lurch­ing on­wards

Finweek English Edition - - PORTFOLIOPUNTS COMPANIES&MARKETS - MARC ASH­TON

HAV­ING EN­JOYED some re­ally nice prof­its from the now delisted En­vi­roserv, I’ve al­ways had a mor­bid cu­rios­ity about my R1 000 of In­ter­waste shares. As the only real ac­cess point to the po­ten­tially lu­cra­tive waste man­age­ment in­dus­try it should be worth a punt, but all I’ve seen is my in­vest­ment steadily whit­tled down over the last year and a bit.

Trad­ing at 100c three years ago, In­ter­waste has con­tin­ued to drop and is now trad­ing at 40c. Not much to get ex­cited about, and its full-year trad­ing re­sults to year-end De­cem­ber 2010 were also a bit of a mixed bag, with man­age­ment even terming them a “dis­ap­point­ment”. In short, its re­sults were a bit messy, with a fair num­ber of im­pair­ments and over­state­ments be­ing put through. In­ter­waste says its fi­nan­cial con­trols weren’t up to scratch and it’s bol­stered the team. But at some point you’re go­ing to start won­der­ing when those things are go­ing to stop crop­ping up. Since list­ing in 2007 it’s stum­bled around in the dark and those in­vestors still left are prob­a­bly hop­ing for a drama-free 2011.

So what are its in­ter­est­ing lines? With rev­enue of R442m and gross profit of R152m it’s a busi­ness with fat in its mar­gin and some­thing that could be ratch­eted up­wards on vol­umes. Sec­ond, at a tan­gi­ble net as­set value of 57c/share you can buy the share at a dis­count. Net as­set value is 71c/share, and that’s post the write-down of some prop­erty as­sets.

Its cash and cash-flow po­si­tions are im­prov­ing, but when you’re push­ing through R440m in rev­enue and de­liv­er­ing a de­cent num­ber on the gross profit line you should be do­ing a bit bet­ter than just R9m in the bank. Throw in R47m in in­ter­est-bear­ing li­a­bil­i­ties, with in­ter­est rates sched­uled to rise and an­other R18,9m in de­ferred tax li­a­bil­ity, and you start to ap­pre­ci­ate what hap­pens when you get your list­ing wrong.

It’s a ten­ta­tive “buy” – but man­age­ment needs to start pulling things to­gether be­cause in­vestors have lost pa­tience.

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