Not everyone is a fan of the old world trappings of consumer goods distributor Nu-World Holdings. Listed in 1987, the business, which deals mainly in consumer electronics and appliances, has chugged along steadily, never veering into any significant corporate action but rather building on its stable of brand distribution agreements. Yes, there have been far more exciting places to be invested in on the JSE over the past four decades. But, arguably, none quite as dependable as Nu-World — as a steady 37-year unbroken track record of profits and dividends will attest.
Let’s just mull the dividends for a minute. Since 2014, Nu-World has paid a collective R20.81 a share in distributions to shareholders — a figure that will move to R22.61 a share when the declaration for the period ended August this year is paid over. Those collective dividends represent almost three-quarters of the share price. Investors could have bought Nu-World shares at anywhere between R15.50 and R22.75 a share 10 years ago. Considering the sumptuous dividend flows, it might be surprising that the Nu-World share price is hovering just above R30 these days. The share trades on a reasonable forward earnings multiple of 7.5, and still offers a fairly attractive yield of 4.5%.
The lack of market enthusiasm for Nu-World is twofold. A quick scan of the company’s 10-year review will show a steady decline in revenue after a peak of R3bn in 2018/2019, dropping to R2.6bn, R2.36bn, R2.15bn and R1.9bn in 2023. Recent years, with frustrating bouts of load-shedding and higher interest rates, have not been the best of times to peddle kettles, toasters, microwaves, air fryers, television sets and the like.
But Nu-World’s revenue for the year to end-August 2024 was up 8% at R2.06bn — the first top-line increase in five years. The second-half trading at least appeared to be markedly stronger, bringing in 206c a share from the 147c a share earned in the first half (which takes in the Christmas sales period). But the margin is nowhere near the peak 9% recorded in 2018, or the 8.5% managed in financial 2021. The margin of 5.6% for 2024 slips back from the 6.15% achieved in financial 2023.
There is still work to do, but it will probably take a marked loosening of discretionary spending for Nu-World to make merry on the operating margin again. The relief from load-shedding and interest rate hikes might start making a difference to consumer spending habits as we hurtle towards year-end. Then there is the possibility that companies, prospects buoyed by a settled government of national unity, could fork out bonuses and 13th cheques.
It will probably take a marked loosening of consumers’ discretionary spending for Nu-World to make merry on the operating margin again
Maybe that’s what the 14% year-to-date increase in Nu-World’s share price is contemplating. Still, I wonder what Inhlanhla Ventures — which has held a commanding shareholding position for more than five years — makes of developments. Over three years, the share price is down 13% and over five years, it has slumped by a quarter. I’m quite sure Inhlanhla is not there just to pick up dividends, not when I make the hard NAV of Nu-World at just under R70 a share.
With the share price trading at close to a 60% discount to the hard NAV, surely something has to give sooner rather than later. But exactly what to do in this regard? I’m not sure Nu-World, aside from specialist private equity interest, would be coveted by other listed businesses. Nu-World’s probably too small to appeal to Bidvest, and probably not really in what Hudaco Industries would call its sweet spot. KAP is probably not in a position to make acquisitions, and my gut feel is that Deneb would prefer to concentrate on higher-margin industrial platforms.
I’m surprised there has not been a takeout offer dangled in front of minority shareholders after so many years of grinding along. What does strike me, though, is that Nu-World’s offshore business (which takes in Australia and other selected territories) is looking sprightlier than the local operational core. It reminds me ever so slightly of Argent Industrial, which has a cash-churning industrial assemblage mainly in the UK that is far more profitable than its local core. Nu-World’s revenue in South Africa was static at R1.26bn; the offshore component increased top line 25% to R803m. Net income from offshore was R45m vs R29m from the larger South African operations. This is encouraging, with the Australian operation pushing to further widen its customer base and enter into new markets.
Nu-World also increased sales and profitability in other offshore markets — but no detail was given about these achievements other than an indication that “the group is on an expansion programme to increase existing markets and to firm up on new market opportunities”. Balance sheet-wise, Nu-World’s sitting pretty. At the end of the 2024 financial year it was sitting with cash of about R450m, equivalent to about R21 a share.
There will be hopes that the cash position, which dwindled from R524m in the previous year due to an increase in working capital requirements of R65m, will be markedly bolstered again in the financial year ahead. Inventory levels jumped almost 9% to R514m, with stock in transit shifting to R136m as the group geared up for peak season and the much-mooted Black Friday sales blitz.
For those who still maintain Nu-World is long overdue for a value unlock, now might not be the worst time for a buy-in (and to collect a decent dividend too).
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