Finweek English Edition - - INVESTMENT -

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.

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