Right climate for Lewis to buy back its shares

The past few weeks have been a particularly busy time for the Lewis Group head office, and the newly appointed company secretary has had little time to relax.

It’s not just the financial 2018 results, which were released before the appointment on June 11. The group announced it spent R85m on the repurchase of 2.9-million of its own shares, equivalent to 3% of its equity.

The repurchases were made between November 21 2017 and June 14 2018.

The price at which the shares were repurchased demonstrates the volatility of trading during the period, with a low of R23 and a high of R39.50. The total price tag for the shares was R82.5m, suggesting an average price of just over R28.

The current share price is R30.30, way off its recent high of R48, with indications it may be moving into a range that will trigger additional repurchases.

The company does have the authority to repurchase an additional 1.9-million shares. At the annual general meeting in October 2017, shareholders voted to approve the repurchase of up to 5% of its issued share capital.

This is the second repurchase effected by Lewis in the past 12 months or so. In October 2017, it informed shareholders it had spent R95m repurchasing 3% of its shares. It marks a shift for a company that had made no repurchases since 2007.

While there is controversy around share repurchases (critics describe it as a partial liquidation and contend it creates an artificial floor for the share price), Lewis’s circumstances do favour the strategy — little or no debt, growing cash balances, subdued trading environment and a share price trading substantially below net asset value.

Hands up who wants to shake the South African National Roads Agency out of its torpor?

As SA’s roads crumble under their users, Sanral has decisively cut spending, compounding the woes faced by the country’s construction sector.

In its own annual performance plan of 2018-19, Sanral states: “One of the essential requirements to drive the National Development Plan vision is the development of a strong network of economic infrastructure, of which transport infrastructure is among the most crucial.”

And yet an update from Raubex, one of SA’s foremost road builders, indicates the exact opposite.

Lower spending by Sanral is hurting both Raubex and its subsidiaries and is likely to force the company to retrench and downsize.

In a country starving for jobs and growth, it seems ludicrous to point out that this should not be happening.

Raubex, meanwhile, has been among the hardiest of SA’s construction stocks, managing its workflow and cash, and continuing to pay shareholders dividends throughout the most straitened of times.

At what point, however, does that resilience wither?

The company is now warning of an earnings drop of at least 20% for the period ended August.

While it has managed to pick up work in affordable housing and renewable energy, its principal road business is faltering.

Sanral and the government need to get their act together, and fast.