Torre still ex­pand­ing in a dif­fi­cult en­vi­ron­ment

Finweek English Edition - - PRO PICK - Di­rec­tor at Capilis As­set Man­agers

Torre In­dus­tries, a rel­a­tively small and un­known l isted com­pany wit h a mar­ket cap­i­tal­i­sa­tion of R2.4bn, is an i ndust r i a l g r oup t hat pr ov i de s equip­ment, par t s , f i nanc­ing a nd sup­por t ser v ices t o c u s t o mers through­out Africa.

The com­pany re­placed the list­ing of SA French, led from the start by its cur­rent CEO, Charles Pet­tit, in Novem­ber 2012. SA French st i l l op­er­ates as a sub­sidiary un­der Torre, and is the lead­ing dis­trib­u­tor of tower cranes and l ift­ing so­lu­tions in sube­qua­to­rial Africa.

From there on it em­barked on an ac­quis­i­tive spree, where it ac­quired nu­mer­ous com­pa­nies as part of its busi­ness st r ateg y to di­ver­sif y it s oper­a­tions and even­tu­ally op­er­ate a de­fen­sive busi­ness model.

One of its most re­cent deals was f i nalised i n April 2014, when it ac­quired Con­trol In­stru­ments Group (now known as Torre Automotive), a com­pany that owns and sells ex­clu­sive pr e miu m br a nded a f t e r mar­ket automotive parts in­clud­ing Gabriel, the lead­ing ride con­trol sys­tem in Africa. Although Torre has been very ac­tively ac­quir­ing new com­pa­nies, it has a con­tin­ued fo­cus on or­ganic growth, which seems to be work­ing very well for the com­pany, and the share­hold­ers.

The g r oup s a i d i n a t r a d i ng state­ment on 28 Au­gust that it ex­pects head­line earn­ings per share (HEPS) for the year to end June to be be­tween 29c and 30.4c a share, up be­tween 140% and 150% from the pre­vi­ous year. It has been able to cre­ate tremen­dous rev­enue and profit growth in an in­creas­ingly dif­fi­cult eco­nomic en­vi­ron­ment, with the share price up more than 300% since its list­ing three years ago.

Another in­ter­est­ing note is that Stel­lar Cap­i­tal Part­ners, a com­pany bi l l i on­aire busi­ness­man Christo Wiese is in­volved i n, has a c qui r e d a strate­gic 26.25% stake i n Torre, with ta l ks un­der­way to ac­quire a fur­ther 8.33%. We wait to hear more de­tails on the strate­gic na­ture of the deal, but are sure it will be to the long-term ben­e­fit of the share­hold­ers.

The share has been trad­ing side­ways for a while now, but we be­lieve that in­vestors are still wary of the state of the econ­omy, es­pe­cially con­sid­er­ing

CEO of Torre In­dus­tries t he i ndust r y t he com­pany op­er­ates in, and waited to see i f Torre can de­liver another i mpres­sive set of re­sults. We be­lieve that the share price should move up to at least R6 (from R4.75 at the time of writ­ing), which would give it a his­tor­i­cal priceto-earn­ings ra­tio (P/E) of around 20.

With man­age­ment i ndi­cat­ing a min­i­mum HEPS f ig­ure of 42c/share for the 2016 fi­nan­cial year, the share is trad­ing at a one-year for­ward P/E that is too low for a share show­ing such con­tin­ued high growth. Although we are not the big­gest fans of the sec­tors the com­pany op­er­ates in, we be­lieve it still has a long way to go be­fore its earn­ings start to ma­ture. We have been ac­cu­mu­lat­ing Torre at cur­rent lev­els, and still rec­om­mend it as a buy.

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