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Spanjaard share |
31 October 2013. Spanjaard is a manufacturer of specialised lubricants & allied chemical products for the industrial, automotive, marine & household markets. It also produces metal powders, which is one of the 20 odd components that go into the manufacture of brake pads. It's got a tiny market capitalisation of R41m, so is in all likelihood completely ignored by major asset managers - and it's precisely these types of stocks where I like to dig around to check for mispricings.
Earnings are volatile, depending on the occasional large order and international sales depend inter alia on the strength of the Rand. Over the last 10 years the weighted average of my rough approximations for owner earnings is R4.1m (far less weight given to the older number than the newer numbers), which is higher than the approximate owner earnings of R3.3m to 31 August 2013.
However, the Rand averaged 12.93 to the Euro in their last financial year, and it currently costs R13.6 to buy a Euro. I think that if the Rand remains at 12 to the Euro, there's a good chance that earnings in the financial year to 28 Feb 2014 will be higher, as the weak Rand may boost international sales and cushion local Spanjaard sales from international competition. Spanjaard did well the last time the Rand dropped to 12 against the Euro, from 1 March 2008 to 28 February 2009.
Assuming owner earnings of R3.9m, an 8% required spread over a risk free rate of 7%, and real growth of 0.5%, you're looking at a fair value per share of R5.48, which is 10% above the most recent trade of R5.00 (NB there are some very contestable assumptions in that calculation, and it will be wrong, the only question is by how much!).
I own shares in Spanjaard.
Here's a discussion of Spanjaard on ABN Digital with Paul Theron saying he doesn't like the stock, citing the fact that it's family controlled, and Tshepo Modiba saying it's hot!
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