An overlooked bargain
My best use of a credit card, my wife will be glad to know, is not to accommodate a slush fund but rather to jimmy open doors, a skill I learnt at university. Sliding a student card down a door frame would, after several attempts and a couple of shoulder barges, click open the lock to grant access to a putrid dorm room where a tardy (read: hungover) occupant — hopelessly late for the soccer/cricket/ tennis match — was slumbering. Of course, clever students soon learnt that sticking a drawing pin into the door frame just above the lock stuffed up the breaking-in procedure.
In any event, my locksmith skills famously uncovered a dangerous kit laundering scheme involving a neverto-be patented semi-automatic washing machine. Hacker (not his real name, but true to his nature), our illustrious res soccer team captain (who honestly would have not been out of place in the defensive line for the early 1970s Leeds United XI), would regularly miss the laundry drop for our soccer kit. Unperturbed, Hacker would deposit the soiled kit in his bottom drawer, toss in several handfuls of washing powder, give the drawer several vigorous shakes and then shut it until match Sunday. By the fifth game of the season, parts of my keeper’s jersey felt like a corroded cheese grater, and our midfield scratched in impressive unison. One can only shudder at the rash outcome if the laundry jaunt was not uncovered when we sneaked into Hacker’s room to seek out the hiding place for his herbal tea stash.
Speaking of breaking and entering, I am amazed at how the market seems oblivious to the defensive qualities of security barrier business Trellidor. This is a cash-generative business with an easy-to-understand business model and scope for low-risk organic growth. The market accords it an earnings multiple of eight, and the modestly rated stock price offers a handsome yield of 6.5%. In the year to June, operational cash flow was up strongly to R96m — equivalent to close to 100c a share and securely underpinning a 21c dividend.
Trellidor executives have knuckled down in these hard times to focus on internal improvements — buying out (and turning around) underperforming franchisees, sorting out the UK business and expanding the product range.
Marked improvements
Prospects are not brilliant in this dour economy (and especially with signs that the lockdown building boom may be tapering off), but I expect the UK business and newly acquired franchisees to kick in strongly in the new financial year. Sales in July and August were at the same levels as financial 2021. It could get better if new products and existing product derivatives gain traction in the months ahead. Most importantly, though, I am reassured by Trellidor’s conservative balance sheet management — one of the hallmarks of enduring small-cap companies (think of Spur, Nu-World and Bowler Metcalf). The Taylor Blinds acquisition probably did not pan out exactly as Trellidor envisaged, though there have been marked improvements to that business. I would be quite content for Trellidor to continue buying back franchisees, bolstering the UK and African operations and buying back more shares.
That said, Argent Industrial recently snapped up American Shutters for R57m, which should reinforce its security barrier business in Xpanda. American Shutters had a NAV of about R12m at the end of July, and managed almost R10m in after-tax profits. I’m not sure American Shutters would have easily slotted into Trellidor, but it is heartening to see that a well-established business can be bought so cheaply. Trellidor, of course, would need to fund any potential acquisition target(s) with cash/borrowings since its share price precludes mobilising scrip. That, of course, could change — but I doubt a rerating will happen quickly. In the interim, smallcap punters might do well to lock in.
I’m reassured by Trellidor’s conservative balance sheet management — one of the hallmarks of enduring small-cap companies