A FAIR MARGIN OF SAFETY
Results from engineering company ELB Group show sales up 50.3% while HEPS actually slipped to 121.7c from the previous period’s 124.4c, as costs pretty much matched the revenue increase. However, what catches my attention every time the group releases results is its cash position – with cash and cash equivalents at R583m while the group has a market cap of some R1.4bn. In other words, pretty much a little over a third of the share is underpinned by cash. This has long been the trend of ELB Group, although a few years back cash was closer to R800m while the market cap was some R1bn, but the group still offers a fair margin of safety with the cash pile. issue here is a contract in the DRC that has fallen apart over payment disputes and cost over runs. Small companies are always very susceptible to the risk, or reward, of single contracts while a larger company could still be hit by such a contract dispute and it would have other profitable contracts to help cushion the blow. The bigger picture here is that the stock now trades at 30c with a reported tangible net asset value (TNAV) of 87.8c for the period ending August 2013. But of course we have repeatedly warned about the risks of TNAV and I would expect to see that value plummeting with the next set of results.