From having been in the news consistently some years ago — mostly for all the wrong reasons — industrial counter Invicta Holdings has now become something of a recluse, as far as communication is concerned.
The most recent corporate event, judging from Sens announcements, was the release of interim results in late November 2022.
Every subsequent Sens notice has been about directors buying Invicta shares, as the stock has been range-bound between R26 and R28 since July 2022. Year to date Invicta is down 1% — basically tracking the small-cap index.
IM is surveying Invicta to form an opinion about the impending announcement of the company’s results for the 2023 financial period, in the light of the recent sparkling numbers from comparative business and sector competitor Hudaco. Invicta seems like a lost waif, unloved and uncommunicative. Could the forthcoming results announcement change that?
In truth, Hudaco may have a greater consumer contribution than Invicta. However, its main industrial divisions are similar to the domestic offerings of Invicta.
Hudaco’s 2022 year-end results were robust, with headline earnings up 22% from a 12% rise in revenue amid tight cost control. The best growth came from engineering consumables, where operating profit rose 28.5%. For the year ahead, Hudaco’s CEO was upbeat in his outlook.
Invicta has similar industrial and engineering consumables operations to Hudaco, on top of the rand hedge benefits of its operations in China, Southeast Asia and Europe via Kian Ann and KMP. IM has also heard whispers that Invicta has been scouting in the US for an acquisition to expand its global geographical footprint; its aim is to eventually generate 50% of profits offshore.
With little news flow aside from information about directors’ frequent buying of shares, the market is awaiting a business update for Invicta’s March year-end. Results are traditionally released in late June.
This very lack of news is one of the reasons, IM believes, that Invicta has been left on the market sidelines. As some investors have said to IM: “Invicta needs to communicate more; nobody knows what is going on.”
Things could turn on the release of the 2023 results, especially given that the first-half results were healthy. In its interim results to September 2022 Invicta reported a modest 7.2% rise in revenue to R3.8bn, with the ongoing focus on costs and margin protection leading to a 16% rise in profit before tax. Headline earnings rose 42% to 268c a share. The company pays only an annual dividend.
In Invicta’s results to March 2022, headline earnings were 330c a share. This makes IM pretty confident that the company will have to issue a buoyant trading update for its March 2023 year-end, given those encouraging interim indicators.
The company is debt free and on the acquisition trail, and there is the profitability of its offshore business
Owing to the lack of corporate news, IM will have to take a stab in the dark about Invicta. IM is fairly confident that, like Hudaco, Invicta will have had a robust reporting period. The company is debt free and on the acquisition trail, and — since the restructuring of Kian Ann — there is the profitability of its offshore business. Then there is the effect of the acquisition of KMP in the UK, where, IM understands, profit participation and growth back to the Invicta core have been good.
Management has also indicated that if it is unable to find suitable acquisitions that will enhance earnings, it will buy back shares because of the company’s low earnings multiple and material discount to NAV.
Regarding the two companies’ share prices over the past 12 months, Hudaco has risen 11.6% while Invicta has declined 15.5%. As far as valuation goes, Invicta’s stock, ahead of its 2023 results, is on a earnings multiple of 8.25, vs Hudaco’s eight (fresh from its recently issued results).
Invicta also has a robust NAV of R40 a share — which places the stock on a discount of 32% to NAV. In ordinary circumstances, such a value trap and moribund share price would have private equity and activist shareholders sniffing around.
However, given the shareholder control right exercised over Invicta by majority shareholder Christo Wiese and management, it is unlikely that any tilt will be made at Invicta. This has also contributed to the sense of malaise regarding the company, especially relative to Hudaco.
IM foresees 2023 headline earnings to be at least 400c a share and the dividend possibly 100c a share. The stock has been trending sideways, with management lapping up shares. That sends a signal.
IM sees the impending trading update and results announcement as possibly the kicker that is needed to move Invicta higher. At R27.25, IM is placing a buy recommendation on Invicta.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.