The ‘Span­jaard In­qui­si­tion’

Finweek English Edition - - COMPANIES & MARKETS - MARC HASENFUSS marc.hasenfuss@finweek.co.za

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…

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