Security barrier company Trellidor was founded in Durban in 1976. It listed on the JSE in 2015, tapping a sweet spot, most observers might regretfully admit, when SA’s crime rates and incidents of unrest were escalating.
The company is active in SA, the UK — in its recently acquired business — and, through a franchise model, 17 countries across Africa, Europe, Australia and Israel.
It manufactures and sells custom-made security barriers, blinds, shutters and decorative mouldings through two business units, Trellidor and the Taylor Group.
The second half of its financial year ending June 2020 was severely affected by Covid-related restrictions and the resultant effect on consumer and commercial spending. But the group’s recently released results for the six months to December surprised on the upside, showing a substantial improvement.
With a focus on the preservation and generation of cash and improvement in operational efficiencies, Trellidor reported cash from operations up 50% to R48m on the prior period. Through active cost management the group was able to maintain gross profit margins despite the weakening of the rand during the period.
Headline earnings per share for the six months to December were 30.6c a share, compared with 25.6c a share for the comparable six-month period the year before and 13.8c a share reported for the full year 2020.
This means the company reported a negative 11.8c a share for the second half of the 2020 financial year
The strong cash generation enabled the business to pay out a dividend of 10c a share for the period, a notable achievement at a time when many listed companies haven’t been able to declare dividends.
Interest-bearing debt of R88m is down from R99m for the full year and the interest-rate cover has improved to a healthy 10.9 times, which is in line with the pre-Covid levels of the 2018 and 2019 financial years.
What is clearly evident from Trellidor’s results, as well as those of other domestic listed companies (like Italtile) is the surprising resilience of consumer confidence in this segment of the market.
Clearly, consumers are prepared to open their wallets and spend on the upgrading and maintenance of their fixed assets despite it being a time of uncertainty.
Management has given guidance that sales for the first two months of the second half of the 2021 financial year (January and February) have been in line with the prior year (pre-Covid) levels, and that the Covid-induced low base experienced last year from March to June 2020 should be exceeded (in the absence of further hard lockdowns).
The second half of the current financial year will also benefit from the inclusion of the Trellidor UK business for the full six-month period.
This acquisition was completed in October 2020 and entailed the purchase of Really Secure Co UK (RSC), which had operated as a Trellidor franchise in the UK.
Operationally, management remains optimistic, and is looking to increase the size of the group’s owned and managed branches in three of the major SA cities.
The company will also look to acquire any franchises that become available in any of the local main centres.
A further potential benefit to the business during the second half of the year is the launch of four new products. Two of them have already been launched this year and the other two are expected to be operational in April and May.
The directors of the company clearly believe the market is not valuing the business correctly and took advantage of the general market sell-off during the interim period by acquiring and cancelling 2.2-million shares at an average price of 173c a share. A further 1.3-million shares were bought in January at an average price of 251c a share. At the current share price of more than 340c, this was value accretive to current shareholders.
Trellidor instituted a share buyback programme in 2018, and since embarking on it has acquired and cancelled about 11.6-million shares.
It now has 96.7-million shares in issue, with a market cap of about R330m.
At the current share price, and taking into consideration that the business has already achieved 30.6c a share for first six months of this financial year, the company’s upper-teens earnings multiple should unwind down to a cheap single-digit multiple six months out. This, together with returns to shareholders in the form of cash dividends and share buybacks, make Trellidor a company worth looking at.
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