Mistimed moves
Timing is everything, they say, though there remains a heated debate around the contrasting investing theories of “timing the market” and “time in the market”.
Last weekend my timing in replanting the now-expanded veggie patch was spot on — albeit aided by the splitting pain I get in my left shin bone ahead of serious precipitation. After redigging and recomposting and planting the various winterbearing vegetable seeds, I discovered to my dismay that the old wellpoint was no longer spouting its life-giving water in reassuring gushes.
It has been a hot, dry patch down in the Western Cape, which might have stanched the usually reliable underground torrent from Slangkop. We contemplated hauling water from the JoJo tanks and doing the old watering can waltz. I remembered my sciatica and prudently bailed out.
Thankfully, early on Monday morning I was woken by deep, sharp pains in my lower left leg, which precipitated a halfdecent deluge at dawn. Our summer yield was record-breaking and might have had even the chaps at Zeder green with envy. The winter crop is a considerably riskier harvest — especially with the fast-procreating baboon troop showing no signs of retreating from the village.
Unfortunately, I also got my timing horribly wrong last week, not only on the tennis court (where we were whipped by a youthful Plumstead side) but on the unforgiving public forum of Business Day TV. Among my usually well-considered share picks last week was an outright “hallelujah shot”: construction group Aveng.
I explained that the trading statement was imminent, and that such a binary stock
pick could well blow up in my face. I did think, however, that Aveng might surprise with a better than expected interim performance. But true to the JSE’s construction stocks, Aveng underwhelmed. Consequently, the share last week shifted close to a 12-month low.
In short, Australia is striding along, while South Africa is a little hobbled by a difficult contract. Eternal optimists — and I know a few — will point to the 64% growth in Aveng’s work-in-hand to about R50bn. Those infernal pessimists will bring up reminders of the challenges in not letting the margins on this impressive workbook crumble. With headline earnings up sharply (76c-80c a share) but the more relevant adjusted earnings (39c-46c a share) markedly lower than the 2022 interim period, I think the pessimists win the day.
As a pragmatist, I am taking some heart from Aveng’s determination and discipline in building sustainable longer-term growth. Whether I’d be accumulating Aveng at R12 levels, I’m not so sure. At the time of writing I did not have the convenience of scanning the just-released financial statements. Maybe the finalisation of the pending sale of Trident Steel, which seemed to enjoy a vibrant interim period, might be a trigger point. Aveng, if anyone needs reminding, was trading at R16 when the Trident sale was announced in early October. Have prospects really turned that brittle?
Muted share action
Speaking of trading statements, two companies I have highlighted in past columns — car rental and leasing firm Zeda and fast-moving consumer goods specialist CA Sales — have both issued upbeat trading statements.
The market reaction surprised me a little. Zeda delivered decent earnings before interest, tax, depreciation and amortisation growth on a reassuring margin. Encouragingly, revenue of the car rental business surpassed pre-pandemic levels, even though the billed days were at 68% of the same quarter in 2019. Zeda expects the utilisation rate to improve to the targeted 73%-75% for the 2023 financial year. Yet share action was muted, which is strange, considering the number of tourists still enjoying the South African summer and the waning rand making our shores a more affordable getaway for international holidaymakers. The soft share price is typical of a freshly unbundled counter, where investment mandates and portfolio styles might preclude holding Zeda (unbundled from Barloworld). CA Sales, another unbundling (this time PSG Group), also impressed by pencilling in headline earnings of 77c-80c a share for the year to end-December. This is between 33% and 38% up on last year, with the Botswana-based company reporting organic growth as well as new client gains. Long-term holders of CA Sales (myself included) will be encouraged by the trading statement in terms of ambitious expansion goals set by the management team. CA Sales is targeting a doubling of revenue to R20bn by 2026, stressing the revenue target is “a proxy for sustainable growth”.
I’d expect full-year revenue to be in the region of R10bn at the end of the 2022 financial year; the company has set shorter-term sales targets of R13.5bn in 2024 and R17bn in 2025. Even after shifting up about 7% to 700c, CA Sales does not look overpriced. But I suspect it could still be a while before real small-cap enthusiasm drives the share.