Finweek English Edition - - HOUSE VIEW - BY WAR­REN DICK

WE ALL KNOW THE con­struc­tion in­dus­try is the most bombed-out sec­tor on the JSE at the mo­ment, so it is a good place to be look­ing for cheap stocks. The ob­vi­ous place to begin is with the small­est play­ers in th­ese unloved ar­eas of the mar­ket.

Stef a nutti Stocks – with a mar­ket cap­i­tal­i­sa­tion of R1bn – meets our cri­te­ria. So, j ust how ridicu­lous have things got? The com­pany is cur­rently pre­par­ing re s u l t s fo r th e ye a r e n di n g Fe­bru­ary 2015. On 9 March, the com­pany pro­vided a tr ad­ing state­ment no­ti­fy­ing the mar­ket that head­line earn­ings per share (HEPS) would be be­tween R0.98 and R1.11, an in­crease of be­tween 55%-75% on the pre­vi­ous year. The s t ate­ment was nat­u­rally ra t h e r wel l- r e c e i ve d by th e mar­ket – it sent the share price from R4.91/share to R6.30/share with one rapid en­try on the or­der book.

How­ever, there was a bonus. The loss-mak­ing power di­vi­sion of Ste­fanutti Stocks has now met the re­quire­ments to be clas­si­fied as a dis­con­tin­ued op­er­a­tion. This means that last year’s HEPS will have to be re­stated to re­flect con­tin­u­ing op­er­a­tions. This is done to en­sure com­pa­ra­bil­ity be­tween last year’s earn­ings (i.e. 2013/ 1 4) and the forth­com­ing r esult s f or t he f i nan­cial year 2014/ 15 – upon which the trad­ing state­ment is based.

In ef­fect, what is hap­pen­ing is that the power di­vi­sion’s earn­ings will be stripped f rom head­line earn­ings for l ast year and this year. The net ef­fect will see HEPS for 2014/ 15 ris­ing be­tween 55%75% ( R1.28- R1.42/share), based on the re­stated num­ber for last year of R0.83/share.

Af­ter the share price en­joyed the bump fol­low­ing the trad­ing up­date, i t has si nce sli d f rom R6. 30/ s hare t o R5.78/ s hare. Based on the an­tic­i­pated re­ported num­bers pro­vided by the trad­ing state­ment, the com­pany is now trad­ing at a price- to- earn­ings ra­tio of be­tween 4 and 4.5 times. So, ac­cord­ing to the mar­ket at the mo­ment, you can’t buy a burger joint on 4 times earn­ings, but you can buy a con­struc­tion com­pany. And t hat ’ s ex­actly what you should do.

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