Category Archives: Trellidor Holdings (TRL)

Research reports on Trellidor Holdings Ltd (Code: TRL) a niche home improvement manufacturer and distributor of security gates, shutters, blinds and related.

Trellidor Door Holdings – H1:22 – Series of Unfortunate Events

Share Code: TRL – Market Cap.: R267m – PE: 7.9x – DY: 3.9%

H1:22 Results: Riots, Strike, Shortages & Curveballs…

  • The riots in July & the metalworkers strike (c.12% lost production time in Trellidor) combined with stock shortages in the Taylor to hurt sales & pressure margins.
  • Despite losing an estimated c.R25m of turnover & c.R12m of EBITDA to these unfortunate events, Group revenue managed to be maintained at R284m (H1:21 – R282m).
  • Gross margin contracted to 40.1% (H1:21 – 44.6%), EBITDA fell to R46.5m (H1:21 – R57.8m) & HEPS contracted to 25.4cps (H1:21 – 30.6cps).
  • As a final curveball, a contingent liability has manifested in the form of an adverse labour judgement being upheld. We have assumed an R29m one-off expense in H2:22 due to this & management have skipped their dividend in anticipation of having to fund this drawdown.

Our Thoughts: Better H2:22 Likely

  • We expect that in H2:22E, the acquisitions in Trellidor Retail, the full-period consolidation of the UK, the maintenance of full production in the factories and more aggressive price increases are all likely to see some of the H1:22 underperformance clawed back.
  • Despite this, recent raw material price spikes (from Russia-Ukraine) & supply chain disruptions (from China’s latest COVID outbreak meeting its zero COVID policy) put this view at risk.

Forecast, Valuation & Implied Return: Worth > 400cps

  • Our DCF Models imply that Trellidor is worth c.469cps (previously: 548cps) on a PE of 13.2x & EV/EBITDA of 7.3x.
  • Our Relative Valuation implies a fair value of 411cps (previously 470cps), which does not agree with the above DCF. Despite this, both models indicate a fair value for Trellidor at least greater than 400cps (well above the current 285cps share price).
  • Rolling this DCF SOTP fair value forward we arrive at a 12m TP of 580cps (previously 656cps) implying a total return of c.103%.

Trellidor Holdings – FY 21 – Secured a Good Result

Share Code: TRL – Market Cap: R323m – PE: 8.3x – DY: 6.2%

FY 21 Results: Sterling results, strong cash flows & good dividend

  • Trellidor released strong results, reflecting the Group’s healthy recovery with revenue rising +23% y/y, cost-savings, efficiencies & lower finance costs lifting headline earnings by +181% y/y and HEPS doubling (+195% y/y) to 40.8cps (FY 20 – 13.8cps).
  • Underpinning the results was strong cash generation; management declared a full-year dividend of 21cps (FY 20 – 8cps) putting the share on a juicy 6.2% Dividend Yield.
  • Management continued to grow the Group’s product range (four new products were successfully launched & a commercial product range expansion is planned in the coming year) while bringing underperforming Main Centre franchisees in-house to great effect (acquired franchises grew revenue +46% like-for-like!), yet the Group also managed to control its overheads and saw a mere +4.3% y/y rise in operating expenses.

Our Thoughts: Bottom-line momentum likely to continue

  • Given the Group’s tight cost control, the price increases that it will leak into the market and franchisee consolidation & growth uplift that we expect, Trellidor’s EBITDA, operating profits and, ultimate, bottom-line momentum appears likely to continue for FY 22E.
  • We have raised our expectations of share buy-backs from 1.0% pa to 1.5% pa, especially if the share price remains languishing at its current market price.
  • All these initiatives imply attractive upside to forward HEPS.

Forecast, Valuation and Implied Return: Undervalued & Yielding

  • Our DCF Models imply that Trellidor is worth c.548cps (previously: 442cps) on a c.13.5x PE and c.7.1x EV/EBITDA.
  • Rolling this fair value forward at our CoE, we arrive at a 12m TP of 656cps (previously: 532cps) implying a large 93% return from the current share price (including dividends).
  • Speaking of dividends, irrespective of fair values, Trellidor shares still trade on an attractive 6.2% Dividend Yield (&  Forward DY of > 7%) that looks to be comfortably sustainable.

Trellidor – Initiation of Coverage – Compounder with Yield & Tailwinds

Share Code: TRL – Market Cap: R333m – PE: 18.4x – DY: 2.3%

Business Overview: Leveraging Product, Route-to-Market & Returns

  • Trellidor’s traditional business of customized manufacturing of security gates for a national, African and export network of franchisees remains strong while management’s addition of innovative & complementary products (including Taylor blinds and shutters, and NMC) is logical and steadily gaining traction.
  • The Group is cash generative and management’s careful capital allocation into the acquisition of (some) the main regional franchisee, share buy-backs below fair value & degearing the Group’s balance sheet while paying dividends should all add to the Group’s financial performance and shareholder returns.

Macro Environment: Home Improvement Tailwinds

  • While high domestic real rates had depressed residential property and home improvement markets, the South African Reserve Bank’s strongly accommodative monetary response to COVID-19 has reversed this trend with exciting implications.
  • Building materials, home improvement sales and the residential property markets have all positively responded to this and, in many instances, are trading at-or-above their pre-COVID levels.
  • Despite numerous domestic & global macro risks remaining, Trellidor should be a beneficiary of these home improvement & residential property market tailwinds.

Forecast, Valuation and Implied Return: Undervalued & Yielding

  • Given a reasonableness check against our implied EV/EBITDA regression, our DCF Model indicates that Trellidor is worth c.442cps or a c.8.8x PE and c.4.4x EV/EBITDA against our expected FY 21E earnings. These valuation metrics appear quite undemanding of a Group with a 5-year average ROE of >20% and a Free Cash Flow/EV Yield just shy of 18%.
  • Rolling 442cps forward by our CoE, we arrive at a 12m TP of 532cps implying a 54% return from the current share price.
  • Even if the market never fully reflects this valuation, it is worth noting that the share’s attractive c.6.0~7.0% Dividend Yield also makes this compounder a good yield play.