Reunert shares are a long way off their former highs and, despite this week’s rally, only 8% up over one year. Yet year-end results from the company — which has businesses that span ICT, electrical engineering, defence and renewable energy — show considerable growth: revenues up 16% and operating profit 17% higher. The FM spoke to CEO Alan Dickson.
How big are the opportunities in renewable energy for you? Some analysts reckon that the solar power project to sectional-title developments, for example, is worth hundreds of billions alone. Is it really that big?
Reunert’s investment case has two component parts to it. First, our traditional businesses, like cabling, which are a nice diversified group of assets that don’t consume large amounts of capital and which are cash generative. Those businesses took a bump through Covid but they’ve come back strongly. We think that will continue into next year. Second are the growth assets. Those centre on the ICT segment, internationalisation and then the renewable energy division. In renewable energy I think the market opportunity is big, as analysts have said. The renewable energy market is driven by the liberalisation of the generation market and the underperformance of Eskom. The two big moves in the past 12 months are the lifting of the embedded generation cap to 100MW and the release of the window 5 and 6 projects of the REIPPP [renewable independent power producer programme]. Some research indicates that the market is going to grow by about 30% a year for the next five years, and even within the government’s IRP [integrated resource plan], they’d earmarked about 500MW a year of embedded generation. I think it will be more than that; but if you take 500MW you’re looking at roughly R10m per megawatt, which is what’s required from an investment point of view, so that’s the sort of number, at a minimum, that we’d be looking at.
And the risks?
The risks are potentially regulatory, though I’m seeing enough evidence from the government that it is not going to regulate renewable energy down. There’s competition — everybody is now climbing in. But the ecosystem is very broad. We’re building far more than just a solar business. We’ve got Terra Firma which builds solar plants, we’ve got BlueNova that has storage that I think is going to be the next big wave. We’ve got a company called CBI Energy that manages energy efficiency, and we’ve got a company called Apollo, which will wheel [deliver] energy.
Reunert is quite a diverse group and there’s no natural equivalent in South Africa and not too many internationally either. I think we should back ourselves to stay on the JSE
— Alan Dickson
It feels as if Reunert dropped off investor radars for many years after being touted as a beneficiary of government infrastructure spending in the early 2000s. Have you felt yourself to be in the wilderness?
Since we sold Nashua Mobile in 2014 we’ve had a good run. The share price grew from R55 to R82 by 2019, but then we got hit pretty hard through Covid and I think that’s when we dropped off everybody’s radar. My assessment is that the market’s a bit of a slow believer, but we’ve now had two good years behind us. Our prospects for 2023 look positive and we’re actively positioning ourselves in the minds of investors. I think we have a nice growth story to present to the market.
There are some contentions that Reunert would be a buyout target, given how its shares have languished. Do you see yourselves as such?
When I think about a buyout there are two points: I would argue that we are undervalued at the moment. But I think we are going to see a much improved share price in the next 12 months so I think the value gap in Reunert is going to diminish quite quickly as people appreciate the investment case. The second part is, who would buy us? Reunert is quite a diverse group and there’s no natural equivalent in South Africa and not too many internationally either. I think we should back ourselves to stay on the JSE, and I think there’s a lot of value for shareholders off the current base.
Your ICT segment overall probably produced the weakest growth — operating profit up 6% compared with electrical engineering, which was up 17%, and applied electronics, which grew 64%. What happened?
The biggest impact was load-shedding. We service the small and medium market, companies with 1,000 people or below, and they were really badly hit by load-shedding. Then we had a chip shortage and weren’t fully able to meet market demand because of some shortfall there. But [the chip shortage] is definitely easing and I think we’ll see a better year for ICT.
Reunert’s defence business, which falls under applied electronics, had a good year. With a big global ramp-up in spending on defence equipment, is that likely to continue?
I absolutely think so. We’ve got a really good defence business, it’s almost exclusively export — and that was one that was hammered by Covid because we couldn’t travel or get to our customers. We’ve actually got a record order book at the moment — more than 75% of next year’s sales requirements are already in orders. Historically, at the peak of that segment, we did around R350m of operating profit a year, and we made about R160m this past year.
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