Many investors, when they hear the terms “industrials” or “engineering sector”, may conjure up a vision of something grim, outdated, in terminal decline and definitely worth avoiding.
Small-cap metal basher Argent Industrial is the exception to this rule. While it may not have the glamour or the ratings and perception of the favoured go-go stocks, there are profitable engineering niches that have outperformed, where changes in legislation and policy have led to outperformance from those companies able to adapt and reinvest.
Argent has been on an earnings ascendant since 2018 and has had 14 successive increases in profits, HEPS and net asset value (NAV), yet the earnings multiple remains an undemanding 5.7. On a one-year basis Argent is ahead 5%, over three years 127% and five years 425%. It’s been a star performer within the IM coverage universe.
By selling low-margin, capital-intensive businesses in South Africa and recycling the cash into niche acquisitions, principally in the UK, Argent has evolved, its business profile improving alongside its earnings. Yet its rating remains stuck, for now, in its metal-bashing past.
Year-end results to March showed the benefits of operational leverage, where operating profit rose 9% and profit for the year 9.7%. The larger manufacturing units reported profit up 13.6% to R243.7m, offsetting the 78.1% slump in steel trading to R5.8m. Growth was driven principally from offshore businesses, where profit rose 21.9% to R265m.
A small benefit of lower shares in issue saw earnings increase 12.5% to 493.3c a share. NAV increased 12% to almost R35 a share and Argent paid a dividend of 120c a share. Rand hedge earnings are now 72% of profits and have been moving higher for several years as Argent undertakes niche bolt-on deals.
In the past year, the company bought out security-barriers business franchise Xpanda Canada and purchased Mersey Containers, a temporary building site office business. It remains on the prowl for further deals.
In the company’s 2025 results to March, cash on hand was R487m or 896c a share or 31% of the current market cap of Argent. IM envisages that could rise to R560m or R10.40 a share, or 36% of current market cap, when interim results to September 2025 are announced.
IM does not believe the market has given the company enough credit, from the significant improvement in the balance sheet over the past years. It is seemingly ignoring the value of this hard-cash asset — and especially Argent’s judicious and accretive acquisition policy.
As we look ahead to interim results to September, IM understands that general business trading across most business units has been performing well, with record order books at some of the UK operations. At the end of 2025 the problem child, the South African steel trading unit, had a 12.8% decline in revenue to R451m and a 78.1% slide in profit to R5.7m. It remains challenging but has materially de-stocked inventory to increase cash. IM still believes the business remains an asset that will be sold in due course.
Other noncore assets, such as the quarrying and cement business Megamix, may be sold if there is a reasonable offer.
With interims to September 2025 ahead, from a base of 231c a share (which was a modest increase of 3.7% from the first half of 2024), IM foresees modest single-digit growth in HEPS to 248c a share (7.4%). With the majority of earnings offshore and the volatility of the rand from September 2024 to September 2025 against the key currencies that affect Argent (pounds, dollars and euros), alongside higher UK tax charges implemented a couple of years ago, plus the changes in employee National Insurance costs, there is likely to be a muting of the interim earnings profile.
Argent has, for many years, been buying back its own shares. With a discount to NAV now at 19%, IM believes opportunistic buy-backs will continue, given the cash pile. But Argent has also increased its dividend payouts, aiding the overall investment return.
As a small cap with a valuation of just over R1.5bn and tight liquidity, Argent remains out of the limelight for many institutional funds who have missed out on solid capital gains over the years. But the group has performed well for private investors.
IM remains positive on the counter, despite the stock recently hitting a new 52-week high. The lowly rating, cash hoard, chatter on further acquisitive deals and asset sales leads IM to retain a long-standing, and successful, BUY recommendation.
Anthony Clark
*The writer holds shares in Argent Industrial
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.