The ‘Spanjaard Inquisition’
LUBRICANTS SPECIALIST Spanjaard has been grinding along valiantly for almost a quarter of a century on the JSE.
While the market clearly isn’t terribly excited about Spanjaard, there’s the added hassle of a lack of liquidity – with almost 72% of the 8,1m issued shares in the hands of three shareholders. What the company does have are great manly brands such as “Cockpit” (easy, it’s just an anti-static spray), “Spark” and “Liquid Grease”. But it’s a small niche and turnover has only recently ticked past the R100m mark.
This may sound awfully cynical, but does Spanjaard really have a business model that investors on the JSE will find vaguely attractive? At first glance you might argue Spanjaard – one the JSE’s few family-owned small cap companies – would sit better as a division of an industrial clustering, such as Hudaco or Invicta, or even Control Instruments.
Maybe… although maybe not if you look at Spanjaard with any degree of optimism. In the year to end-February 2011 it doubled profit from operations to R9m, with net profit coming in at R4,8m or 59c/share. The earnings quality looks fairly good, with operating cash flow a well-greased R8,9m.
Debt did cut into profitability (with an interest bill of R1,5m) – but chairman Rob Spanjaard reassures the additional investment in new production and warehousing “will secure our profitability going forward”.
At this point it might be worth mulling that a tweak in operating margins, a change in the rand and the culling of debt levels could see Spanjaard doing R9m to R10m over the medium term. That’s more than 100c/ share for a company with an “interesting” dividend policy (126c/share has been returned to shareholders over the past five years!).
And it’s not as if there’s no value underpin either. Spanjaard’s net asset value of 474c/share is as tangible as it gets, with property, plant and equipment stated at R37m. Perhaps it might pay not to be too dismissive of this industrial minnow…