Key for growth will be scoring market share

It has become a habit to start a year with Nu-World Holdings as one of our company reviews. But continued coverage is justified as it continues to offer extraordinary value for patient investors content with steady profit growth and a generous yield underpin.

How a business with an unblemished record of profitability, a well-reinforced balance sheet and stout cash flows can trade on an earnings multiple of less than five times is mind-boggling.

Then again, sentiment in the JSE’s small-cap space has rarely been this jaundiced.

Nu-World’s share price suggests the market is anticipating a tough year to end-August 2019 — a reasonable assumption judging by retail sales over Christmas, the poor prognosis for consumer spending and the confidence-sapping resumption of load-shedding. Interim results will be published in late April — with possibly a trading update earlier.

In the last financial year NuWorld reported that its core local business performed well — increasing revenue 11.4% and attributable income by 29%. The margin looked fairly solid at 15.6%.

The difference in growth pace between top and bottom line can be explained by NuWorld directors’ reference to “various improvements in efficiencies” — including consolidated warehousing and distribution. But squeezing efficiencies might not be the only chance of Nu-World racking up profit growth.

Directors appear bullish on the group’s ability to find products that appeal to consumers’ needs for devices that are smarter and easier to use.

Encouragingly, Nu-World says summer seasonal sales,

which will be reflected in the interim numbers, “started well and real growth is anticipated”.

Its small domestic appliance and white goods segment appears to be teed up for a big drive in the year ahead.

In this regard, the group launched a new top-end brand, Ultimum, which aims to bring high-end product to the consumer at affordable prices.

These ranges are being extended, and the group says competitive price point models continue to be released with new improvements in quality and design.

On the white goods side, Nu-World is offering more comprehensive ranges. Refrigeration sales are also on the up.

Its foray into fast-moving consumer goods (FMCG) is fascinating — especially the thrust into the “sin brands”. The group says the FMCG division has been expanded by incorporating locally manufactured, exclusively designed cigarettes under the Ultimum brand. On the liquor side, additional single malts and Japanese whisky have been added as well as two additional gin brands.

While things look promising locally, the immediate prospects for Nu-World’s offshore interests — which represent around a quarter of revenue — are trickier to quantify.

Turnover was down at R748m (previously R923m), but an improved margin of 6.2% (5.6%) restricted the drop in income to R69m (R76m).

The Australian pitch looks difficult and the Middle East and Far East not exactly exciting. India has shown glimpses of promise. But Nu-World reports that the South American hub (Brazil, Uruguay and Paraguay) is stronger with a promising forward order book.

The key for growth at NuWorld will be scoring market share both locally and in its expanding offshore territories.

The X-factor is corporate action. Wild Rose Capital — whose prime movers are behind JSE-listed eNX Group — holds a 33.5% stake in NuWorld with the founding Goldberg family still hanging onto a sizeable shareholding.

Whether Wild Rose Capital has plans for Nu-World is unclear. But it’s doubtful that it is just a passive big investor. Marc Hasenfuss