Re­unert: Awaited break­out is in the off­ing

Finweek English Edition - - KILLER TRADE - BY MOXIMA GAMA

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.

POS­SI­BLE SCE­NARIO:

AL­TER­NA­TIVE SCE­NARIO:

R53.98-R72.10

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