Research: Industrials
Argent Industrial (Argent) is primarily a steel-based beneficiation group, bolstered by offshore investments in both existing and new ventures, and by promoting exports. Its strategy of moving away from solely South Africa (SA) to the UK and US has established a solid diversified foundation for sustainable growth locally and internationally. Consequently, there has been a CAGR in headline earnings per share of 33% over the past five years, with 76% of this growth derived from regular business operations and the remainder fuelled by a steady share buyback strategy. Net cash of ZAR403m is equivalent to ZAR7.40 per share, or 35% of the current market value. The stock trades at a P/E of 4.9x (compared to international peers at 8.5x) and offers a dividend yield of 5.4%.
Written by
Hennie Vermeulen
Argent Industrial |
Cash flush
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Basic materials |
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28 June 2024 |
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Argent Industrial (Argent) is primarily a steel-based beneficiation group, bolstered by offshore investments in both existing and new ventures, and by promoting exports. Its strategy of moving away from solely South Africa (SA) to the UK and US has established a solid diversified foundation for sustainable growth locally and internationally. Consequently, there has been a CAGR in headline earnings per share of 33% over the past five years, with 76% of this growth derived from regular business operations and the remainder fuelled by a steady share buyback strategy. Net cash of ZAR403m is equivalent to ZAR7.40 per share, or 35% of the current market value. The stock trades at a P/E of 4.9x (compared to international peers at 8.5x) and offers a dividend yield of 5.4%.
Margin driven by diversification
In 2017, SA-sourced revenue exceeded 95% and the SA pre-tax profit contribution stood at 70%, while these now account for only 51% and 37%, respectively. Thanks to higher margins from the UK and US, Argent’s overall operating margin improved from below 5% to almost 14% in FY24. Moving some of the company’s business activities outside SA and securing more lucrative margins on manufactured products have compensated for the traditionally low steel trading margins.
Diversification doubles as natural hedge
Argent’s diverse manufacturing portfolio serves as a hedge against mixed demand trends. Although many of its SA products are sensitive to factors in the building and construction sector, diversification within these business units provides additional security as they directly engage with both end-consumers and businesses. Other products are influenced by security aspects and, with the constant threat from crime, the demand for physical security items appears stable. Internationally, the need for fuel storage solutions and security items could boost sales, and the level of rail activity in the US could ensure steady demand for its speed control retarder systems in railyards.
Share buyback proves to be value enhancing
Since 2016, Argent has implemented a share buyback strategy as a method of capital distribution to shareholders, spending ZAR268m by FY24, of which ZAR208m (78%) was applied over the past five years. This reduced its issued shares from 91.8m to 54.4m (-41%). The buyback yield reached a high of 22.7% in FY20 and has since decreased to 3.0%. Additionally, the company distributes dividends as part of its cash distribution policy, maintaining a cover ratio of approximately 4x.
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Historical financials
Source: Company financial reports |
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Research: TMT
MoneyHero has made a promising start to FY24, with robust levels of revenue growth in Q124 across several core markets and all product verticals. Investment in the platform has resulted in improved application conversion rates, while several senior hires have been made, including the new CFO, Hao Qian, and a head of AI. Although the EBITDA loss widened in the quarter, management expects profitability to improve to a break-even run rate by end FY24. Our estimates are unchanged, anticipating sequential quarterly revenue growth as management accelerates investment in its user base and benefits from operational leverage.