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Accentuate – H1:14 Results – Tough Trading Period

H1:14 Results Note – Share Code: ACE – Market Cap: R73m – PE: 11.3x – DY: 0.0%

H1:14 Results: Tough Trading Period, Hampered by Weak Rand & December

  • Accéntuate reported disappointing H1:14 results that saw sales rise 7% to R157m (H1:13 – R146m), but margins compress and Operating Expenses rise by c.13%. The rise in opex was partly due to Suntups duplicate leasing costs (eventually this business will moved into existing Group premises) and distribution costs being passed onto the Group by the higher diesel price.
  • This culminated in profit attributable to shareholders falling c.49%, HEPS being reported below our expectations at 2.81cps (H1:14 – 6.01cps).
  • Two small acquisitions were made during the period, being Suntups (wooden flooring) and Degrachem (metal treatment chemicals).

Our Thoughts: Promising Start to H2:14E

  • Floorworx saw a particularly tough December 2013 that appears to have reversed during January 2014, but the volatile Rand has affected most its businesses units negatively in the short-term.
  • In the long-term, though, the weak Rand creates a massive competitive advantage for the Group’s East London manufacturing asset (key in Floorworx) that positions the business well for the (very) slow recovery in some key indicators in the local construction and infrastructure market continues.
  • The South African elections (coming early May) create some short-term downside risk, as we believe that public sector spend is likely to be interrupted before, during and after this period.

Forecast, Valuation and Implied Return: Underpinned by Tangible NAV of c.90cps

  • We lower our fair value to 86cps (previously: 122cps), which is underpinned by ACE’s current TNAV of c.90cps and arrive at a 12m TP of 100cps (previously: 142cps), on an Exit PE of 11.0 (which is arguably inflated due to the trough earnings the Group is trading through currently as well as the fact that Ion Exchange Safic adds to our DCF SOTP but doesn’t add to the Group’s profits at this point).
  • Our 12m TP of 100cps (previously: 142) implies an attractive 73% return, but note the risks to our view later in this report.

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