Monthly Archives: August 2021

Renergen – More Positive Developments

Share Code: REN – Market Cap: R2.2bn – PE: -50.5x – DY: 0.0

News: Helium and LNG offtakes lining up nicely

  • Phase 1: Renergen has signed a 5-year LNG offtake with a major glass manufacturer, Consul Glass. The supply of LNG is to begin in January 2022 and ramp-up to 14tons/day. The LNG will be priced off the floating South African LPG price.
  • Phase 2: A raft of supply agreements for a total of c.65% of the expected helium production of Phase 2 has been signed with a range of major players (Linde Inc., Messer LLC, Helium24 LLC) for between 10 to 15 years. The helium will be priced in US Dollars with annual escalations linked to the US CPI.

Spot Prices: Moving in Renergen’s favour

  • Most spot prices and currencies have gone in Renergen’s favour, thus leading to a strong uplift in the Group’s implied Sum-of-the-Parts (SOTP):
  • South African Diesel Whole Price (A1) has risen +7%, leading to a higher value for the Group’s LNG reserve that is priced at a 25% discount to this price,
  • Rand has weakened nearly 9% versus the US Dollar, both helping lift up the above-noted diesel price and boosting the USD-denominated helium price, &
  • The South African 10-year bond rate has dropped from 9.26% to 8.96%, lowering our WACC & boosting our NPV.

Valuation and Implied Return: Contrary to share price weakness…

  • Reflecting the above-changed input variables (amongst several other minor ones), we see REN’s fair value as 5603cps (previously: 4535cps) and its 12m TP as 6567cps (previously: 5330cps).
  • We find it strange that the share price has moved contrary to the positive movements in the variables driving up the implied fair value of Renergen.

Refer to our Initiation of Coverage for more background.

ARB Holdings – FY 21 – Shooting the Lights Out

Share Code: ARH – Market Cap: R1.3bn – PE: 6.8x – DY: 4.6%

FY 21 – Exceptionally strong results

  • ARB Holdings released exceptionally strong FY 21 results with revenue roaring ahead by +24% y/y (and +8% versus FY 19) to R2.9bn (FY 20: R2.3bn) driven by a recovery in both Electrical and Lighting that is likely to carry into FY 22E (at least).
  • Added to this top-line expansion, the Group’s cost-savings, efficiency gains & cash preservation all aided HEPS upwards by +38% y/y (and +41% versus FY 19) to 82.5cps (FY 20: 59.9cps) & making a mockery of our forecast FY 21 HEPS.
  • The Group resumed its dividend payments and declared a full-year dividend of 42.5cps that includes a 10cps special dividend.

Our Thoughts: CEO continuity in place

  • ARB’s results are even more impressive considering that they were produced during a period that saw a range of hard lockdown levels, multiple waves of COVID, Eskom loadshedding and a domestic recession.
  • Long-serving CEO, William Neasham, has announced his retirement and lined up Blayne Burke as his successor.
  • Burke has run the Group’s major Electrical Division for many years and, thus, provides deep institutional knowledge, expertise, and comfortable continuity at the executive level.

Forecast, Valuation & Implied Return: Margin of Safety

  • We see fair value as 654cps (previously: 631cps) on a Price Earnings (PE) of c.7.9x, which is hardly demanding given the quality of the underlying businesses.
  • Our EV/EBITDA-implied fair value of 740cps backs up this view, if not hinting at a degree of upside risk to our forecasts.
  • Using our DCF as a base, our implied 12m TP of 766cps (previous 12m TP: 737cps) places the share on an Exit PE of 8.0x & implies a potential return of c.37%.
  • Refer to our original Initiation of Coverage for more background.

Sabvest Capital – H1:21 – Delivering Growth & Offering Value

Share Code: SBP – Market Cap: R2.1bn – Dividend Yield: 0.45%

H1:21 Results: Businesses trading at-or-better than 2019 levels

  • Sabvest Capital’s Net Asset Value (NAV) per share grew by +24% y/y to 8240cps (H1:20 – 6624cps) to the end of 30 June 2021. We have updated this post-period and see NAV currently at closer to 8500cps (our estimate).
  • The Group doubled its interim dividend to 20cps (H1:21 – 10cps) as its balance sheet saw degearing and management has steadily continued buying back shares in the open market (which we consider value accretive at these levels).
  • Perhaps most importantly, management emphasises that at the date of publishing the results all the Group’s businesses are trading at-or-better than 2019 (and 2020) levels.

Thoughts: Upside to forward valuation, corporate actions

  • Multiples used to value the Group’s unlisted investments were flat or slightly lower than prior periods. This gives us comfort that NAV growth is earnings-based (i.e. good quality).
  • In Classic Foods (and, even Revix) case(s), it looks likely that valuations may be written upwards in the near-term. Added to this, the current trading of the underlying businesses implies higher forward valuations too, even if multiples remain flat.
  • Finally, management’s share buy-back & hints at a potential acquisition may drive further upside from here.

Valuation, 12m TP & Implied Return: Lots of value available

  • Updating the Group’s NAV for the latest market prices and taking out our fairly-valued “HoldCo discount” of 20% (previously: 19%), we arrive at defendable (post-discount) fair value for Sabvest Capital shares of 6826cps (previously: 6402cps) or +31% higher than the current share price. As noted, we see upside risk to this expression of fair value.
  • Rolling our fair value forward at our Cost of Equity, we see the Group’s 12m TP as 8000cps (previously: 7542cps) with an implied return of +54%.

Refer to our Initiation of Coverage for more background.