Tag Archives: trellidor

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%.

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.

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.