A share to plug into

Financial Mail - Investors Monthly - - Front Page - Marc Hasen­fuss

It’s prob­a­bly the time of year to start think­ing about the fes­tive sea­son hol­i­days and the usual ex­cesses that ac­com­pany them.

Many of us would fan­ta­sise about re­ceiv­ing an­other bonus in the first few weeks of 2019 — to help mop up a soggy debt deck in the wake of the Christ­mas spend­ing tidal wave.

Div­i­dends from com­pa­nies with a De­cem­ber year-end tend to only roll in dur­ing April, May and even June. But per­haps there is a way of land­ing a div­i­dend from a mod­estly priced com­pany where there is also po­ten­tial cap­i­tal gain via a long over­due mar­ket re-rat­ing.

Let me con­fess that I can be a bit of a “div­i­dend farmer”. It’s a tricky ploy, and the div­i­dends ploughed back into my trad­ing ac­count don’t al­ways cover the sub­se­quent cap­i­tal loss when shares go ex-div­i­dend.

One ef­fort that did not pan out last year was a punt on con­sumer goods spe­cial­ist Nu­World Hold­ings. It paid a hefty div­i­dend of 292c/share in early Fe­bru­ary this year, but the share price re­treated af­ter pay­ment was ex­e­cuted and I sold at a small loss.

Nu-World is worth an­other look this year. The share — R36.80 at the time of writ­ing — is be­low the R41-R43 lev­els at the end of Septem­ber and early Oc­to­ber last year.

The share price lull is cu­ri­ous be­cause Nu-World — which pro­vides low-cost house­hold ap­pli­ance brands as well as a new thrust into niche liquors — looks in bet­ter shape this year than last year. I’d wager the com­pany, not­with­stand­ing the pre­vail­ing squeeze on dis­cre­tionary spend­ing, will pay a higher div­i­dend for the year to end-Septem­ber 2018.

In the pre­vi­ous fi­nan­cial year Nu-World more than dou­bled pre­tax prof­its to R219m, and posted a 73% hike in head­line earn­ings to 780c/share. The div­i­dend pay­out was cov­ered 2.7 times by earn­ings. In the in­terim pe­riod end­ing Fe­bru­ary 2018, pre­tax prof­its were R114m and head­line earn­ings nearly 400c/share.

The econ­omy is get­ting tougher — but I can’t imag­ine Nu-World post­ing any­thing less than 800c/share for the full fi­nan­cial year. A trad­ing state­ment should be due any day now. Earn­ings of 800c/share would put the share on a for­ward earn­ings mul­ti­ple of 4.6, and pre­sum­ing a div­i­dend pay­out of 300c/share, an at­trac­tive yield of more than 8%.

What might worry pun­ters is that Nu-World’s op­er­a­tional cash flows re­versed dra­mat­i­cally in the in­terim pe­riod. But di­rec­tors did point to a 55% in­crease in trade and other re­ceiv­ables to R544m — due to strong late sales in both lo­cal and off­shore op­er­a­tions at the end of the in­terim pe­riod.

In other words, if we take the word of di­rec­tors the “miss­ing” cash flows should ma­te­ri­alise in the sec­ond half.

An­other worry is the in­flu­ence of the weaker rand on im­ported prod­uct lines.

Yes, that is al­ways go­ing to be an is­sue — es­pe­cially when it is dif­fi­cult to pass on price in­creases to al­ready fi­nan­cially stressed con­sumers.

But there is a grow­ing “off­set” at Nu-World with a rapidly grow­ing con­tri­bu­tion from off­shore op­er­a­tions based in Aus­tralia, Africa, the Mid­dle East, East­ern Europe, the In­dian sub­con­ti­nent and Latin Amer­ica.

Judg­ing from di­rec­tors’ com­men­tary, trac­tion is be­ing gained in large mar­kets in Latin Amer­ica, East­ern Europe and the In­dian sub­con­ti­nent.

Per­haps the big­gest draw­back is the ret­i­cence by di­rec­tors to com­ment on prospects — which might be in­ter­preted as a lack of con­fi­dence in sec­ond-half prospects.

Nu-World has al­ways been be­low the radar and, as far as I can re­mem­ber, has not openly en­gaged in­vestors through com­pany pre­sen­ta­tions.

Both mem­bers of the found­ing Goldberg fam­ily re­main in­volved in the ex­ec­u­tive func­tions of the busi­ness.

There have been ques­tions around suc­ces­sion, es­pe­cially now that in­vest­ment com­pany Wild Rose Cap­i­tal has snagged an in­flu­en­tial 33.5% stake in Nu-World.

The Gold­bergs have done a su­perb job over three decades in main­tain­ing a lean and mean con­sumer goods op­er­a­tion with an en­vi­able bas­ket of niche brands that has al­ways pro­duced prof­its and div­i­dends.

Con­ser­vatism might un­der­stand­ably have crept in and hav­ing Wild Rose Cap­i­tal in a strong po­si­tion should en­sure Nu-World does not fol­low other small fam­ily con­trolled busi­nesses into a com­fort zone that can turn into stag­na­tion.

Nu-World can be bought at cur­rent lev­els for a hand­some div­i­dend — but there’s also enough in­trigue to stay on­board for the longer term.

The Gold­bergs have done a su­perb job over three decades in main­tain­ing a lean and mean con­sumer goods op­er­a­tion

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