Any business with close to R1bn in turnover and trading on a 6 times price-to-earnings (P/E) multiple is worth having a look at. And with its market capitalisation at approximately R85m, Winhold is now trading at one third of its book value. The share price, as can be seen from the accompanying graph, has fallen fairly steadily from about R1.66 three years ago, to its current 68c. So what’s going on?
For the purposes of our analysis, the company can be broken into two operating divisions. The first comprises the Inmins Trading business, which houses a stable of businesses that supply mining and industrial consumables. These include things like belting, sprockets, pipe, steel, and a variety of mining consumables housed under the Conway Johnson brand. This division also includes revenue from the Gundle trading branches. The division accounted for R499m in revenue in the 2013 financial year, and booked a profit before tax (PBT) of R15m, down 29% on 2012.
The Gundle Plastics division had mixed fortunes last year. Flexible packaging, which manufactures things like polyethylene bags and shrink wrap, booked a loss before tax loss of R7.3m, up from a R5m loss in 2012. Flexible construction, which manufactures things like dam lining and extruded f lexible sheeting, made a PBT of R9m, 35% down on 2012. When combining the results from f lexible pack- aging with flexible construction, the plastics division made a small PBT of R1.7m for the year.
One of the biggest challenges the business faces in the current environment is that its inputs (PVC, polyethylene, and steel) are mostly calculated on a purchasing power parity basis, which means when the rand depreciates, raw material costs go up. The company then has to try and recoup these increases from customers, something it obviously does with varying degrees of success.