Great things ahead for di­ver­si­fied Torre In­dus­tries

Finweek English Edition - - INSIDE - BY SHAWN STOCK­IGT Se­nior Port­fo­lio Manager at Mo­men­tum As­set Man­age­ment

Torre In­dus­tries has come a long way in a rel­a­tively short pe­riod of time, but still has a bright fu­ture ahead of it. In 2011, the com­pany con­sisted of one ma­jor busi­ness spe­cial­is­ing in tower cranes ( Po­tain brand) and was pre­dom­i­nately ac­tive in South Africa (l isted as SA French Limited). Since then the busi­ness has changed its name ( torre mean­ing tower in Span­ish) and moved to the main board of the JSE.

The com­pany has be­come a more scal­able industrial group, op­er­at­ing t hrough si x busi­ness units i n t he man­u­fac­tur­ing, au­to­mo­tive, con­struc­tion, agri­cul­tural and min­ing sec­tors, both do­mes­ti­cally and through­out Africa. The new man­age­ment team has ac­quired var­i­ous busi­ness and well-known brands, such as Gabriel, as part of its drive to de­velop a strong and de­fen­sive busi­ness.

We orig­i­nally al­lo­cated cap­i­tal to the busi­ness when the mar­ket was of­fer­ing the com­pany to us for al­most half the value of the net as­sets on the bal­ance sheet. How­ever, we were well aware that value could be eroded very quickly if the busi­ness did not re­verse the losses it was gen­er­at­ing due to its lack of di­ver­si­fi­ca­tion and the tough eco­nomic en­vi­ron­ment in which it op­er­ated.

We backed a new and high­lyen­er­gised man­age­ment team, who fo­cused on elim­i­nat­ing un­nec­es­sary over­head costs. As man­age­ment bought a sub­stan­tial stake of the busi­ness (with their own money), the com­pany quickly took on a more owner-manager cul­ture and ev­ery ef­fort was made to re­duce costs, which rapidly be­gan to de­liver mar­gin im­prove­ments and bet­ter cash f lows.

Im­proved cash f lows and strate­gic ac­qui­si­tions, in con­junc­tion with wellex­e­cuted cap­i­tal rais­ings, have en­abled man­age­ment to re­duce debt lev­els and re­liance on ex­pen­sive fi­nance fa­cil­i­ties that were put in place when the busi­ness was un­der pres­sure.

In its re­cent set of in­terim re­sults, head­line earn­ings in­creased 118% and the com­pany de­clared a maiden div­i­dend (which hap­pened sooner than we were ex­pect­ing), which fur­ther il­lus­trates the con­fi­dence the board has in sus­tain­ing earn­ings go­ing for­ward.

To put the re­cent num­bers and growth of the group into per­spec­tive: for the 12 months in 2012, the com­pany pro­duced a loss of around R3.5m. Com­pare this now to a profit of over R47m rand for the re­cent six-month pe­riod and one gets a feel for the suc­cess of the im­ple­mented strat­egy. Over this pe­riod, the net as­set value per share of the busi­ness has moved from 85 cents (tak­ing a 10 for one con­sol­i­da­tion of its shares into ac­count) to its cur­rent R1.73 per share.

The com­pany re­cently an­nounced that the Com­pe­ti­tion Com­mis­sion had ap­proved its pur­chase of pre­vi­ously-listed Set Point from Sab­vest (Sab­vest will in turn hold 11.84% of Torre). War­ranties are in place and Set Point will only fully con­trib­ute to the group’s earn­ings in fi­nan­cial year 2016.

The com­pany also raised R348.5m by is­su­ing new shares to the Minework­ers In­vest­ment Com­pany ( MIC) and Safika Hold­ings, which will now own 12.95% and 11.05% of Torre re­spec­tively. To­gether with man­age­ment’s stake of 23.14%, 60% of the com­pany is in the hands of solid long-term in­vestors. Di­rec­tors and man­age­ment con­tinue to back the fu­ture of the busi­ness and are regular pur­chases of shares in the mar­ket.

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