Rolfes Holdings returns to growth
From a family-owned business in 1925, to an AltX listing in 2 0 0 7, this chemical manufacturing business moved to the JSE’s main board in 2011 and now has a market cap in excess of R400m.
While still regarded as a small-cap counter, and therefore perhaps being a little more speculative in nature, the company is achieving growth and a relative outperformance of even its larger sector peers. • Revenue increased by 13.9% (R589.3m). • Export revenue increased by 36.8%
(R119m). • Gross profit margins improved to
23.2%. • Headline earnings increased 16.1%. Industrial Agricultural Mining & water 15.40% 25.70%
42.50% The f i r st half ( H1) of t he 2015 reporting period ending December 2014 highlights a return to growth for the company, after 2014 marked the f irst year in the preceding five, that earnings growth wasn’t achieved. The earnings underperformance in 2014 followed a loss from discontinued operations, as well as the loss realised on the sale of fixed assets. The headline earnings per share (fully diluted) in the H1 results (2015) now highlight a return to the company’s best historic level of interim earnings.
Encouragingly, the company has achieved revenue growth f rom al l its chemical divisions, namely the industrial, agricultural, mining and water manufacturing operations. Gross profit has grown 23.6%, with margins increasing to 23.2%, mainly attributable to the higher margin water chemical business. Operating costs in general have increased, however, this follows further investment into the rest of Africa and Eastern European jurisdictions.
The further international expansion feeds i nto t he continued growth prospects for the company as it widens its distribution channels and capacity. The group’s diversif ication into the rest of Africa and Europe as well as the exposure into the US is now starting to provide a meaningful contribution to revenue (more than 20%) and a welcome hedge in an uncertain global economic environment.
Trading on a price-to-earnings ratio of just over 10 times, Rolfes appears to offer a relative discount within the chemicals space (AECI 15 t i mes, ChemSpec -3.47 times, Omnia 13.4 times, Spanjaard 34 times). The share is delivering on growth at present, while offering a healthy geographic diversity, providing a reduced dependence on the South African economy which continues to show slowing economic growth.
Rolfes Holdings offers a speculative addition to an investment portfolio with a long-term time horizon, at what appears to be a relative discount in a market trading at a historic premium in terms of basic valuation metrics.