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%.