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Accéntuate share analysis |
22 Mar 2014. I ran the hard miles & did a more in depth analysis of Accentuate, which confirmed my previous shallower analysis. I'm not going to bore you with the Excel spreadsheets, but basically over the 5.5 years since 1 July 2008 there's been an average EBIT margin over sales of:
5.7% for Flooring (compared to 4.3% in the 6 months to 31 Dec 2013)
4.1% for Safic (compared to 0.5% in the 6 months to 31 Dec 2013)
If these margins are applied to the sales figures in the second half of the year (R122m for Flooring, R35m for Safic), then we get a normalised EBIT of R8.4m (this compares to reported EBIT of R5.3m), which translates into normalised earnings after tax & finance costs of R5.4m.
Reported EBIT was lower than usual because of the cyclical headwinds in the last half-year:
public sector demand fell
the cost of raw materials increased as well as distribution costs as a result of fuel increases.
Whilst the cost base went up, stock which was already in the system was being sold for a lower price - this can't go on forever and prices will eventually rise.
If margins normalise then I see Accentuate worth in the region of R0.85 to R1.20 per share. I particularly like the prospects of its local tiling plant - the Rand weakness must be building up a huge competitive advantage for it.
It's possible that I'm buying into the share a bit early, as public sector spend may drop because of the elections, which would mean a further poor performance by Accentuate in the half-year to 30 June 2014 (and that a really good buying opportunity would present itself later in the year).
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11 Mar 2014. Accentuate do a few weird things, but have a really firm hold in the semi-flexible tile market in South Africa, being the only local manufacturer - and of course, the Rand weakening can only be good for that, even though, strangely enough, it has hurt them in the short term.
They just reported their worst 6 month performance in years. Call my a cynic, but it's uncanny how their share price went down in a straight line from the end of 2013 from its high of 133 to 59, as the results would have become more and more apparent, but understandable (albeit in a negative sense). What's less understandable is that Donald Platt sold a bunch of shares in the first half of 2013 at 70c and 78c a share, but then didn't sell more when the share price skyrocketed in the second half fo 2013.
The problem the company faced is that its revenue went up by only 7%, whilst its cost of sales went up 10%, other operating expenses increased by 13% and depreciation/amortization up by 13%. The net result is that profit before tax came screaming down by 51%.
Was looking up my trading records from last year - I bought ACE in March at 73c and I sold out completely at 113c and 119c in November. I didn't realise I'd be buying it again so soon, but when the price plummeted to 59c I couldn't risk...even though there were no director trades.
On the revenue side, the main problem seems to be production volumes of flooring products at the East London facility fell 6% because of reduced demand by the public sector. After seeing some signs of improved activity between September and November, trading in December was noticeably the lowest in recent years (possibly due to the disruption caused by the passing of President Mandela). There have been increased competitive pressures on selling prices.
On the cost side, the cost of raw materials has risen and there have been increased distribution costs, largely driven by the higher fuel prices, as well as increased sales costs as the group has attempted to penetrate new markets.
What are normalised earnings?
My opinion is that the company's earnings is below its normalised level, as a result of a drop in public sector demand. This may continue for a bit into the year (as predicted by Accentuate as a result of the election), but will eventually normalise. Prices also haven't reacted yet to the change in the cost base, probably because of stock already in the system which had been purchased at the lower exchange rate.
Costs also seems to be above their normalised levels, with the exchange rate having played a key role.
FloorworX is the only manufacturer in South Africa who produces semi-flexible tiles, fully flexible vinyl sheeting and tiles; so once the imports bought at a stronger exchange rate have made their way through the system and prices increased; this should place them at a competitive advantage.
The share price could drop even lower.
Suntups & Degrachem
24 Dec 2012. In FY2011 Accéntuate made a decision to sell CGA & "return to its roots and focus on the areas of strength within the business".
Floorworx manufactures vinyl flooring, with a leading position in the resilient flooring market in South Africa. FloorworX is the only manufacturer in South Africa who produces semi-flexible tiles, fully flexible vinyl sheeting and tiles. FloorworX also distributes a comprehensive range of International resilient floor coverings, Signature & Quick-Step wood laminates and Kährs engineered wood floors. A wide range of flooring adhesives, accessories and floorcare can also be acquired through FloorworX.
Products manufactured by Safic & distributed by Floorworx include vinyl adhesives, cementitious screeds and maintenance products specifically formulated for the flooring industry. Safic provides chemical & adhesive solutions directed at the food & beverage market, commercial market, industrial market, specialised & vehicle market and the floorcare market.
Growth fairly limited in vinyl flooring market.
Supply manufactured product, not be involved in contract installation.
Carpeting and hard flooring seen as areas for expansion.
Energy related costs.
Commodity prices.
"The relative strength of the rand has had a negative impact on the activities of the group into the African continent, as many of the products sold into these markets are essentially US$ denominated commodities. The state of the currency also contributed towards greater domestic competition and margin pressure due to increased import activity, especially in the flooring sector...the strength of the rand acts as a hedge against rising global commodity prices, especially fuel and petro-chemical derivatives,"
Frederick Platt (CEO, MD of Safic, 45), Christopher Povall (FD, 55), Donald Platt (Executive director, MD of Floorworx Africa, 53).
26% owned by Thebe Investment Corporation.
1 July 2012. Ion Exchange Safic is established, providing water treatment chemicals, resins, waste water treatment plants and sewage treatment plants. A JV with Ion Exchange India.
1 September 2011. Centurion Glass & Aluminium is disposed of.
2006. Listed.
Accéntuate supplies products and services in most floor covering materials.
Vinyl flooring (carpeting & hard flooring seen as areas for expansion).
Adhesives.
Chemical flooring products.
Cementitious products.
Alec Hogg made a call at the end of 2011 that Accentuate was worth accummulating at the 55c level, and drew attention to a group of unhappy shareholders.
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