Initiation of Coverage – Share Code: ACE – Market Cap: R102m – PE: 10.9x – DY: 0.0%
FY 13 Results: Inland Market Tough in H2:13; Acquisitions Made
- Accéntuate experienced a much tougher H2:13 than we had expected. FY 13 revenue flattened to R284m (FY 12: R283m), c.4% shy of our expected turnover mark.
- This soft performance during H2:13 comes from Floorworx where particularly the inland market struggled. Safic and Ion Exchange Safic performed in line with our expectations as the former grows its market exposures and the latter continues to build traction in the local market.
- The Group’s FY 13 EPS rose 17% to 8.4cps (FY 12: 7.2cps), but critically the HEPS from Continuing Operations slipped 11% to 8.4cps (FY 12: 9.5cps).
- Some of this balance sheet was employed post-results to cleverly acquire two small complementary businesses, both paid out in script and to be incorporated from 1 September 2013 (i.e. ten of the twelve months of FY 14E).
Our Thoughts: “When”, Not So Much “If”…
- Disappointing results and acquisitions aside, Accéntuate still remains well positioned to benefit from the pent-up public sector infrastructure spend. That said, the 2014 elections potentially create downside risk regarding the timing thereof.
- In the meantime, management has been driving growth initiatives into other markets and product lines, and seeking strategic acquisitions.
Forecast, Valuation and Implied Return: Small Upgrade
- We raise our fair value for Accéntuate to 122cps (previously: 114cps), which implies a PE of 14.6x. This compares reasonably attractively to two listed comparatives, Distribution and Warehousing Network Ltd (Share code: DAW – PE of 15.3x) and Afrimat Ltd (Share code: AFT – PE of 14.8x).
- Rolling our fair value forward by the Cost of Equity (CoE), we arrive at a 12m TP of 142cps (previously: 132cps), implying an Exit PE of 13.8x and an attractive implied return of 54%.
- The key risks we see in our valuation of Accéntuate remain macro.
* Note that the Group remains under cautionary announcement pending the release of pro-forma financial results relating to the Suntups acquisition. This results note does not take into account any material information following the resolution of this cautionary announcement.