Nu-World’s cramps will pass
Increasingly I take leave of my senses. Last Saturday I abandoned all attempts at selfpreservation by entering the singles draw for the Constantia Tennis Club’s champs. I reckoned my rigorous walking regime had not only increased my court speed but also sharpened my senses to the fickle nuances of singles.
Maybe watching the magnificent young Carlos Alcaraz belting his way to glory in the Madrid Open also inspired me to go solo after many years as a doubles specialist.
I came through the qualifying roundrobin better than I expected, with a couple of wins in the bag. I must have run miles, and for once, I really felt I deserved my post-match beer — even though I was literally washing down anti-inflammatories.
Of course, my feeling of invincibility came to a brutal end on Saturday evening when I was flailing around the darkened bedroom — still half-asleep — with such bad leg cramps that even my earlobe twitched violently in sympathy. I fell over one of the Jack Russells in trying to locate the bottle of No 8 tissue salts, which then predictably spilled deep under my desk.
I can tell you for free, the worst thing you can do in the middle of a leg cramp is get down on your hands and knees. I think I may have briefly lost consciousness. When I came to, I was still howling “Mommy! ”— primal pain at its purest. It smarted even more when my wife tossed me a can of Deep Freeze and told me in no uncertain terms to “be a man”.
Speaking of hurt, consumer brands business Nu-World took some hefty blows to the top and bottom lines in the half-year to end-February, with revenue down 15% to less than R1.2bn and net profits down 19% to R68m.
Nu-World, some older readers will know, is one of a handful of small caps
to graduate from the listings class of 1987, which was a school of particularly hard knocks.
Nu-World has always been profitable and a reliable dividend payer over 3½ decades, and investors might give the group the benefit of the doubt in what was a really tricky trading period with some serious-supply chain hitches.
If anything, the margin was not too badly squeezed and I would still hope for a decent dividend payout if the second half shows some improvement. The share price — down 10% over a month to under R29 — is more pessimistic. Maybe that’s reflecting worries about higher stock levels, and the ability to convert this into cash flow.
In any event, bottom line came in at 315c a share. If Nu-World does no better than matching what it earned in the second six months in 2021 — which was about 292c a share — then full-year earnings will come in at 607c a share. Perhaps Nu-World would apply a more conservative dividend cover of three times, meaning a payout of about 200c a share.
But if cash flows are convincing, the group might stick with a two times cover, which would mean a dividend of closer to 240c a share.
I’m not a shareholder in Nu-World, but a p:e of about five times and a yield of better than 8% for a business with such a stellar long-term profit record looks enticing. Tangible NAV, the way I see it, is about R57 a share — almost double the share price.
Pick one
Investors might give the group the benefit of the doubt in what was a really tricky trading period with some serious supply chain hitches
Then a couple of asides. I note that three of the JSE’s “international” counters — British American Tobacco, Grindrod Shipping and container management group Textainer — are all paying decent dividends while at the same time buying back their own shares.
Personally, I prefer dividends-inhand to the cyclical risk of share buybacks — especially in the case of Grindrod Shipping and Textainer.
I remain fascinated by the market’s reaction to trading updates from smallcap counters — it often seems that any good news takes a while to seep into sentiment.
Specifically, I noted low-cost housing developer Calgro M3 advising of headline earnings of 105c-107c a share for the year to end-February, and innovative logistics group Santova estimating 125c-127c a share for the same period.
The earnings multiples would be about four and five respectively for two vastly different businesses with vastly different prospects. I know which share I would be buying … You? x