Safety in th­ese num­bers?

Financial Mail - Investors Monthly - - Front Page - Nigel Dunn

Trel­li­dor posted a de­cline in in­terim head­line earn­ings of 15% to 29.8c a share (35.2c a share), which brings the rolling head­line earn­ings num­ber to 48.9c a share. The crimped bot­tom line is not that sur­pris­ing con­sid­er­ing the state of the do­mes­tic econ­omy, con­strained dis­pos­able in­come, higher raw ma­te­rial costs and an in­abil­ity to re­cover all the in­creases in op­er­at­ing costs.

Gross mar­gin fell to 45%

(46%), and op­er­at­ing mar­gin was squeezed to 16% (17%).

In the words of man­age­ment, “rather than waste a good re­ces­sion” it has used this time prof­itably. Sev­eral ini­tia­tives have been taken to in­crease sales and im­prove ef­fi­cien­cies, which will re­flect in some rev­enue growth and higher mar­gins.

Trel­li­dor is a ma­ture busi­ness, which means its prospects for vol­ume growth in SA and South­ern Africa will largely be a func­tion of the do­mes­tic econ­omy.

The group has tried to min­imise the slow­down by di­ver­si­fy­ing its range into more aes­thet­i­cally pleas­ing prod­ucts.

Sec­ond, it is ad­dress­ing fran­chises that are not op­ti­mally run.

It is op­ti­mistic on prospects for the Trel­li­dor brand in Africa. Ghana has been a suc­cess, and Trel­li­dor has high hopes for the East African hub. Nige­ria’s two fran­chises are im­prov­ing, and a fran­chise in Uganda is about to be opened.

Trel­li­dor UK has re­ceived good press for the prod­uct be­ing in­stalled in some Lon­don Un­der­ground sta­tions.

His­tor­i­cally, two-thirds of sub­sidiary Tay­lor’s busi­ness has come from the Western and South­ern Cape. It was ex­posed to the same prob­lems af­fect­ing Trel­li­dor na­tion­ally, and had some that were unique to the Western Cape. The 2018 drought brought the prop­erty boom in the re­gion to an end. This was com­pounded by the wealth de­struc­tion aris­ing from the Stein­hoff de­ba­cle, ac­cord­ing to man­age­ment.

But Trel­li­dor has em­barked on some ini­tia­tives that are bear­ing fruit.

For in­stance, the Trel­li­dor fran­chise foot­print is be­ing used to mar­ket Tay­lor’s prod­uct range out­side of its tra­di­tional mar­kets. Gaut­eng is be­com­ing in­creas­ingly im­por­tant with ad­di­tional “Tay­lor” feet on the ground.

Pas­sive moves are afoot to move Tay­lor into KwaZu­luNatal and the Eastern Cape.

Tay­lor is also un­der­go­ing an IT sys­tems up­grade to bring it in line with the sys­tems op­er­ated by Trel­li­dor. Once im­ple­mented, Trel­li­dor en­vis­ages that a num­ber of ef­fi­ciency gains will be re­alised.

His­tor­i­cally the res­i­den­tial mar­ket has un­der­pinned Tay­lor, but now it is look­ing more ac­tively at op­por­tu­ni­ties within the com­mer­cial sec­tor.

Last year rev­enue of R6m was gen­er­ated from this source us­ing Trel­li­dor’s fran­chise foot­print. In six months this has risen to R8m.

Trel­li­dor has a lot go­ing for it — a strong brand, solid de­mand for its prod­uct, good cash gen­er­a­tion and con­ver­sion

rates, at­trac­tive re­turn on cap­i­tal in­vested (18%) and a solid val­u­a­tion. Im­por­tantly, it has a sta­ble man­age­ment team that is cog­nisant of earn­ing an ap­pro­pri­ate re­turn on cap­i­tal. Ex­ec­u­tives have a clear vi­sion and are not lured by short-ter­mism.

They have ad­dressed the fac­tors over which they have con­trol, and the group has been given the once-over. Re­me­dial ac­tion is be­ing taken where ap­pro­pri­ate.

Trel­li­dor is trad­ing on an un­de­mand­ing for­ward earn­ings mul­ti­ple of nine times and of­fer­ing a hand­some div­i­dend yield of 6%.

To date, 1.5% of the is­sued share cap­i­tal has been re­pur­chased from in­ter­nally gen­er­ated cash at prices rang­ing from 375c to 490c. This is a strong en­dorse­ment of the value that man­age­ment sees in the share at cur­rent lev­els.

This is a view shared by IM, and we feel se­cure in rec­om­mend­ing that in­vestors ac­cu­mu­late the share at 430c.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.