BROKERS’ NOTES: Buy Argent, sell KAP

BUY: Argent Industrial 

Small-cap conglomerate Argent Industrial, after several years of rationalising its South African portfolio and reinvesting the proceeds into niche offshore businesses, has transformed from a domestic metal-bashing business into a rand hedge industrial counter. 

Since 2018, the company has had a consistent trend of rising profits, headline earnings per share and NAV. According to its recent FY2025 results, 72% of profit was derived offshore; this is set to grow. On operating metrics, it outclassed all of its locally listed peers. Yet the counter continues to trade on a discounted p:e of five, while comparable companies with lower growth command much higher valuations.

Management plans to exit the remaining domestic steel assets, which underperformed in recent results.

Argent has net cash on its balance sheet of R487m, or nearly 900c per share, with a NAV of R34.88, giving it ample means to continue to acquire offshore assets and buy back shares.

SELL: KAP

Industrial conglomerate KAP has an interest in timber products, automotive components, bedding, polymers and specialised logistics. It’s a mid-cap behemoth that has been a persistent underperformer and is crying out for a shake-up.

FM can see KAP as an activist play. It has a diverse portfolio of assets that needs the deft hand of an experienced industrialist to restructure and optimise. With revenue of R29bn and debt of R9.3bn, it’s a meaty deal given the current R4.8bn market cap. On a one-year basis, the stock is down 37%, whereas Argent is up 21%. Over five years the comparison is even starker: KAP is down 28%, Argent is up 439%. 

But the very scale of the business, its debt and perennial misadventures may be its achilles heel. The market has sold off KAP amid challenging conditions. Despite the potential, unless you’re utterly brave, I’d switch to a better prospect rather than hang on for a swift recovery.