Business Maverick


The Finance Ghost: The lowdown on Premier, Reunert, Balwin and Tiger Brands

The Finance Ghost: The lowdown on Premier, Reunert, Balwin and Tiger Brands
(Photos: Unsplash / Ben Allen | Charles Chen)

There are two businesses on the JSE that could be shortened to ‘Premier’ — one of which is making money lately from squid and the other from bread and other baked goods. Yes, the JSE certainly offers variety.

The focus here is on the baking business that was unbundled from Brait, not Premier Fishing and Brands. The market waited a long time for this asset to be separately available and the latest trading statement is evidence of just how strong it is.

For the year ended March 2023, headline earnings per share (Heps) are projected to increase by between 32% and 42% on a reported basis. Before you get too excited, that perfect sourdough does get reduced to a cheese and onion loaf on a normalised basis, with growth of between 17% and 27%. The difference lies in foreign exchange gains and a reversal of accrued withholding tax.

The other question relates to Tiger Brands and a potential read-through for that business. Although Premier is generally seen as a better business, Tiger Brands surprised me with its recent performance. One wonders if that will be the case once more when Tiger gets its numbers out of the oven.

Reunert’s moment in the sun

Despite the prevailing struggles faced by most industrial groups in SA, Reunert shareholders are smiling. This is because of the company’s significant export and renewable energy businesses, which make it well-positioned in the current environment. In the six months leading up to March, the company saw a 21% increase in revenue and a 33% rise in operating profit, highlighting the benefits of operating leverage.

There’s a twist in this tale. A R44-million insurance payout is included in this year’s numbers, which clearly isn’t a reflection of sustainable performance. If we exclude that, we find a 23.8% higher operating profit, which still demonstrates operating leverage but far less than was initially the case.

The growth in revenue was primarily driven by improved cable volumes in the Electrical Engineering Segment and increased sales in the Applied Electronics Segment, fuelled by demand for renewable energy products and defence exports.

Though Heps saw a 37% increase, the dividend per share only rose by 11%. This could be attributed to a R324-million rise in working capital across debtors and inventory. Despite this, Reunert’s performance reflects its resilience and strategic positioning in the market.

Balwin tracks the path of semigration

The contribution of Gauteng to Balwin’s apartment volumes is decreasing rapidly, dropping from 61% to 48% this year, whereas the Western Cape increased from 32% to 40% and KwaZulu-Natal rose from 7% to 12%. It’s clear that people are trading their Bushveld thunderstorms for views of the sea. Or perhaps just fewer potholes.

In the fiscal year ending February, Balwin achieved a 6% revenue increase and a significant 21% jump in Heps thanks to the group’s focus on margins. With rising interest rates and ongoing pressure on consumers, tougher times may lie ahead, although the company’s healthy cash position of R607.4-million provides some security.

The number of presold apartments decreased sharply from 1,551 in August 2022 to 870 in February 2023. Balwin attributes this decline to a swift response to semigration and fast-paced delivery of units, but that doesn’t make the pipeline any less concerning.

Another concern is the monthly rental guarantee offered by Balwin in some developments, which encourages buy-to-let investments but increases the company’s risk absorption to drive sales.

The substantial 65% discount to net asset value (NAV) per share, trading at roughly 290 cents despite a NAV of 824.38 cents, is a clear sign of scepticism from the market regarding Balwin’s growth story. The market is focused on the dividend yield instead, which sits at roughly 8.3%.

Of course, a trailing dividend yield is only useful if that dividend can be maintained into the following year. DM


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