Reunert: Awaited breakout is in the offing
After peaking at 8 795c/share, Reunert has been dwindling for the past two years. As t he s t ock i s c u r r ent l y consolidating, a positive breakout seems promising, but only once the 6 745c/share prior high is breached.
Reunert has a diversified portfolio of businesses in the f ields of electrical engineering (CBI Electric), information and communication technologies ( Nashua), and defence and a l l ied technologies (Reutech). The company primarily operates in South Africa, as well as in Australia, Lesotho, Sweden, the US and Zimbabwe.
For the past few years, Reunert has endured a bumpy ride, leaving many i nvestors bewildered about f uture sustainable upside. The group’s share price is connected to a few factors that weigh on its direction. To a great extent, Reunert relies on public and private capital expenditure. Therefore, it ’s largely a cyclical player that generates transaction-type revenue.
In addition, the direction of the rand and interest rate movement affects its earnings, and since economic growth has been poor and interest rates are trending upwards, infrastructure spending has failed to take off, with government even intending to reduce expenditure.
Nashua Mobile, Reunert’s consumerfacing business, closed its retail outlets last year after the board decided it was unlikely that Nashua Mobile would be able to generate acceptable returns. It sold its MTN and Vodacom subscriber bases for a total of about R2.26bn to the two mobile operators to settle liabilities and support Reunert’s growth strategy.
Reunert reported an 11% increase in its headline earnings per share for the si x months to end March, with dividends also increasing 11% to 105c a share. The improved performance was thanks to a moderate improvement in the operating profits of the continuing operations, the interest earned on the proceeds of the Nashua Mobile deal and the additional profit earned on the sale of the Nashua Mobile base, the company said on 19 May.
REUNERT RELIES ON PUBLIC AND PRIVATE CAPITAL EXPENDITURE. THEREFORE, IT’S LARGELY A CYCLICAL PLAYER THAT GENERATES TRANSACTION-TYPE REVENUE.
Though Reunert is still trading within its bear trend, it has t urned bullish within its symmetrical triangle. A positive breakout, conf irmed above 6 745c/ share, should trigger upside to either the 7 210c/share resistance level or the back bold trendline. Reunert would break out of its bear trend above 8 200c/share.
But because one would be buying Reunert in its bear trend, I would recommend a neutral long, with an aggressive increment above 8 200c/ share. The point is, escaping a mediumterm consolidation is a big deal, and with the weekly relative strength index (RSI) breaching a major resistance trendline (dated back to May 2014), a positive breakout with potential upside to the 8 560c/share targeted mark is possible.
If Reunert should fail to trade through the upper slope of its pattern, it could retrace to the lower slope. A negative breakout would be confirmed below 5 830c/share, with the downside target situated at 4 015c/share.