Boosted by the needs of work-from-homers

When a company trades at almost half its net asset value (NAV), a low single historical p:e and an almost 8% dividend yield, it should warrant a look. This applies doubly so if it has been a dependable profit producer and cash-flow generator for more than three decades.

Such a company is NuWorld Holdings. It recently released its full-year results for the year ended August 2020, which illustrated a challenging year with revenue declining 13.3% to R2.6bn and headline earnings dropping 16% to 635c a share. But can the latest set of results and future prospects justify a roughly 26.5% drop in share price this year?

On the face of it, IM reckons the drop is not at all justified.

For one thing, this is a company that has endured for many a generation. Nu-World started its journey all the way back in 1946 as a manufacturer of electrical wiring accessories and in 1952 started manufacturing small electrical appliances. Listed on the JSE in 1987, the company went on to become the exclusive distributor in the Southern African region of well-known brands such as JVC (the JVC agency agreement now also includes India, Pakistan and Sri Lanka), Sunbeam, Fenici, Telefunken, Conti and Aiwa, among others. In 2009 the business expanded into liquor and white goods.

Given that the company now mainly operates in the consumer electronics, small domestic appliances and fastmoving consumer goods markets (liquor and other), it would have been profoundly affected by Covid-19-related restrictions during the trading year. It does, though, seem that the small electrical appliances sector may have got a one-time boost from lockdown as previously office-bound workers went on spending sprees to equip their new home offices with kettles, toasters and coffee machines.

What also might have gone unnoticed by the market is that when Covid-19 hit SA shores, management was quick to act proactively. So Nu-World now holds a medical licence for various classes of medical devices, and supplies various types of personal protective equipment to the government, NGOs and corporates.

As almost all the products the company supplies to the domestic market are imported, the business may be vulnerable to the risk of a volatile rand. Management is, however, focusing on diversifying offshore and is active in Australia. What’s more, the JVC agency agreement covers other areas too. But this diversification away from SA will take time.

Despite the SA economy having been in structural decline for more than a decade, Nu-World has done relatively well during this time. NAV has grown consistently during the period from R29.16 a share in 2010 to its current R61.13 a share. Headline earnings have grown from 324c a share in 2010 to this year’s 635c a share, and the company has paid out R18 a share in total dividends for the 10-year period. Despite this, the current share price of R25 is at similar levels to 2011.

Management has managed the balance sheet well, keeping debt under control, so enabling the business to navigate the current turbulent environment.

With only 22.6-million shares in issue, at the current share price the market cap is a paltry R600m odd.

The business may be too small to be on the radar screen of most institutional managers, which may perhaps be the reason for the hefty discount that the share price is trading at relative to most traditional valuation metrics. For ordinary punters, on the other hand, this is a worthwhile small-cap position to have and hold.