Rex Trueform (Rextru) is not the easiest option to punt, mainly because the free float of issued shares is tighter than an Irish rugby maul.
The group also remains doggedly low key — even if control has passed, some years ago, from the Shub family to a grouping that includes former Hosken Consolidated Investments (HCI) executive Marcel Golding and former asset manager Hugh Roberts.
Yet Rextru is one of the more fascinating corporate yarns, a tale of quite remarkable adaptation and endurance. Back in the day (and we are talking many decades ago) the group was running a darn good business in clothing manufacturing from its Salt River and (later) Atlantis factories. The group famously supplied its Balance-Line suits to top UK retailers including Harrods and was regarded as the first local garment maker to pursue major export activities
But the prospects for the local clothing industry turned increasingly threadbare with the influx of cheaper Chinese imports.
Rextru had a factory shop in Salt River that was doing a rip-roaring trade, and the group decided to build this niche retail venture out into what is now the Queenspark fashion chain. By the end of the 1990s Rextru had closed most of its clothing manufacturing operations.
More recently, Golding and Roberts have made further efforts to build a more diversified and sustainable earnings base. This has seen Rextru’s existing property portfolio (initially centred on Salt River) enhanced, and new investments made in water infrastructure solutions and media operations.
Perhaps the most significant change, though, in Rextru is that the trademark cash pile and steady cash flows are no longer underpinning payouts to shareholders. For the moment cash flows are earmarked for new investments. The cash balance at the end of June this year was around R50m — equivalent to about 230c a share.
As things stand, much of the heavy lifting is still being done by Queenspark
What is more reassuring, in light of increased acquisition activity, is that operational cash flows in the past financial year came in at R202m (more than 900c a share) and R120m on a net basis (close to 300c a share).
As things stand, much of the heavy lifting is still being done by Queenspark — which accounted for R58m of the R86m net profit recorded. Property chipped in R15m and media & broadcasting R14m. The water investments still need to properly turn on the profit taps — but this might not be too far off, considering South Africa’s serious water supply challenges at the moment.
Some punters may view the fashion retailing operations as legacy assets that might diminish in importance as Rextru expands its portfolio (which is looking like there is an enthusiasm for specialised media assets). However, this may be unfounded.
In the past financial year there appeared to be a concerted effort to expand the Queenspark chain, which saw the number of outlets growing from 86 stores to 98. This might be one of the largest thrusts by Queenspark in many, many years and must say something about the robustness of the trading format.
While larger fashion retailing conglomerates — TFG, Truworths and Mr Price — have all shown signs of strain, Queenspark looks in good nick. Revenue was up 18.4% to R708m. Even though margins were sacrificed in the tough trading environment — trimmed back to 49.3% from almost 55% — Queenspark still managed to push up profits, from R46m to R58m.
The financial year ahead will be interesting to monitor. Hopefully Queenspark can stay on the profit ramp. But, more importantly, it will be critical to see, in a high interest rate environment, what returns there will be from the R104m spent in the past financial year on a handful of industrial properties in Epping, Cape Town.
The media assets are more difficult to gauge, but certainly some of the profit warranties provided suggest a chunkier profit contribution in 2024.
The water investment remains an X factor — but one that, IM suspects, may have a pipeline that extends years into the future. Rextru holds a 30.79% stake in SA Water Works Holding Company (SAWW), via a 52% controlled subsidiary, Ombrecorp Trading. The group then has an effective interest in SAWW which, in turn, has investments in “entities which provide water and water services to the City of Mbombela and iLembe District municipalities”. How enthusiastic Rextru is about these assets is not discernible in commentary in the annual financial statements.
The bottom line is that Rextru is a work in progress. Investors may well find more exciting options on the JSE, with horizons not so far in the distance. For the longer-term patient investor, Rextru is a cheap entry into profitable retail, property and media assets — with investors fortunate enough to find lines of the more tradable N shares buying in at about two-and-a-half times net cash flows.
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.