Turanrounds: Which dog will have its day?
The industrial landscape, in parts, looks like a sprawling junkyard. Is it worth picking through some of the smouldering wrecks?
TORRE INDUSTRIES Share price: 139c JSE code: TOR BUY THIS INDUSTRIAL SUPPLIES
conglomerate has been hammered in the market over the past 12 to 18 months.
But when the results to end-June were published, the damage (especially to margins and the balance sheet) was not as bad as the share price indicated. It seems likely that a degeared Torre, after a period of much-needed introspection, will start hunting niche acquisitions again.
The overall impression is that the new management team, under deputy executive chairman Jon Hillary, has restored a reassuring calm to Torre’s operations. A final dividend declaration certainly hints that the executive is fairly confident.
The recent acquisition of Top Class Automotive (for a nominal sum of R1) and Transformer Chemistry Services for R17m suggests any acquisition drive will be highly selective and cautiously executed.
Operationally, it seems the right knobs have been tweaked, with an improved gross margin of 37% (previously 34%) and operating margin of 5% (4.2%).
The biggest operational hub, the parts and components division, looks good, with sales up 3% to R907m and profits up 14.5% to R63m. Turnaround efforts are gaining traction at the analytical services and capital equipment divisions. If the interim numbers show a continuation of these trends, Torre could find favour with investors.
PSV Share price: 46c JSE code: PSV HOLD THIS INDUSTRIAL ENGINEERING
firm’s operations span industrial supplies (steel, piping, industrial tools and consumable supplies) and specialised services (cryogenic and gas systems, as well as the supply and installation of geosynthetic linings).
Its prospects are hindered by a lack of appropriate empowerment credentials.
PSV is trading under a cautionary related to a possible BEE deal. Potential empowerment partners may hold out for the best terms, with PSV clearly needing to clinch a BEE deal. But the company has the potential to unlock medium-term value.
Even though turnover crimped almost 14% to R210m in the past financial year, there was a strengthening in gross margins to almost 18% and operating costs were slashed by nearly half. The after-tax loss from continuing operations was restricted to R1.15m, from the R19.35m loss recorded in the previous financial year. Current liabilities dwarf current assets by R10m.
A divisional review shows that PSV has a few feisty operations (Omnirapid and African Cryogenics stand out), and hopefully the company will at least break even at an after-tax level in the interim period.
An improved performance by PSV should attract either a BEE partner or a predator — but hopefully not a cheap-shot management buyout and a delisting.
SOUTH OCEAN HOLDINGS Share price: 50c JSE code: SOH SELL THIS ELECTRICAL CABLE
specialist and lighting distributor has fizzled horribly since coming to the market 10 years ago. The profit switch-off at SOH seems to be company-specific, not due to broader economic issues, as rival ARB Holdings (an electrical equipment and lighting products specialist) has consistently churned out profits and paid dividends.
On paper, SOH might look an attractive deep-value proposition. Tangible net asset value was stated as 314c/share at the end of June, more than six times the ruling share price. But investors need to understand SOH’s operational quandary.
The cables business operates on a sliver of an operating margin, its interim turnover of R626m whittled down to just R8m. The Radiant lighting business generated R142m in turnover — but this blew out into a R10m loss, underlining just how badly SOH overpaid for this business.
Immediate prospects for the lighting business also appear dim. Considering how well (relatively speaking) its ARB-owned rival Eurolux is faring, Radiant’s market share must be under serious threat.
There are far more attractive deepvalue propositions scattered across the JSE, where the “unlock” is far more apparent (and immediate).