It was not until late Saturday night that I finally saw the value in AI. After some diabolical cat-and-mouse tactics during the Fish Hoek Tennis Club championship, a boisterous spectator shouted in Afrikaans: “Marc … jou satan!” — which roughly translates as “Marc ... you devious devil!” One of the younger set decided to make something of that outrageous comment — and the action figure adorning this column is AI-generated. It took no more than a few minutes. The ballet tutu accessory, let me explain, is merely a reflection of the ankle-breaking effort I have endured of late in practising for a skit on Swan Lake for the club’s upcoming variety show. Tickets on request.
Anyway, the point of the preamble is that I am definitely an action man. And the lack of action at value-laden Nu-World Holdings — a well-established and well-managed household appliance distributor — is slaying me. Almost every six months for the past decade I have written on how Nu-World is heavily pregnant with value — but nothing is delivered, except for the steady stream of dividends. I may have related this before, but my biggest regret, value-wise, was not purchasing a mint copy of Hüsker Dü’s Warehouse: Songs and Stories for just R100 from a tiny vinyl emporium in Simon’s Town about 12 years ago. That bit of vinyl — and high point in power pop — is probably worth at least five times that price today.
With Nu-World, the lingering regret is a more duplicitous affair. I could take comfort in arguing that, for once, my lack of patience in investing has actually paid off, as I have preferred to abandon Nu-World several times in the past for shares where there was seemingly more action in unlocking value. For the record, there is a hard NAV of close to R70 a share at Nu-World, compared with a share price ranging between R25 and R27 earlier this week. So, we are looking at a discount of more than 60% applied by the market to a perennially profitable and dividend-paying company.
That is quite a dire pronouncement on value-unlock prospects for the short term. Anyone who bought Nu-World five years ago would, at the time of writing, be registering a scintillating 1% share price gain. Last week that medium-term return would have been negative, with the share scurrying down to R21.01 on tiny trading volumes. Yes, but what about the dividends? There is a valid argument that shareholders are being paid to wait at Nu-World. The group has indeed been a dividend machine during its nearly 40-year tenure on the JSE. In the past 10 years, shareholders would have collectively bagged an astounding R21.37 a share.
That’s worth hanging around for, and a part of me wishes I had been there all along. But that’s just half the story. The past five years have been quite a slog for Nu-World, and the dividend flows have been markedly staunched. Between 2015 and 2019 a collective R12.52 a share was forked out in dividends, but this had crimped to a collective R8.85 a share between 2020 and the end of the 2024 financial year. The dividend cover over the past decade has remained steadfastly at 2.5 times, except for the pandemic-infected 2020 financial year when it was set at a more conservative three times.
There is a valid argument that shareholders are being paid to wait at Nu-World
Dividend prospects for the full 2025 financial year look intriguing, with Nu-World’s interim headline earnings up 19% to 175c a share. Pencilling in stronger second-half trading, it seems a fairly conservative assumption to expect Nu-World at the very least to match last year’s earnings of 351c a share. If the group once again earns 200c a share in second-half trading, we are looking at full-year earnings of close to 380c a share. On a 2.5 times dividend cover, that would mean a payout of about 150c a share — placing Nu-World on a sumptuous forward yield of 6%.
Much, though, will hinge on second-half operational cash flows. Almost R16m was absorbed by the business and, coupled with the 2024 dividend payment and tax paid, the cash outflow for the interim period topped R50m. The cash flow statement needs to be seen in the context of the winter season stocking-up, with stock in transit sitting at a rather lumpy R238.5m. Overall, inventory levels were up 18% to R565m. Hopefully all of this will translate into reassuring cash flows in the second half. At the end of the interim period, Nu-World’s cash balance had been reduced to R411m — equivalent to R18.85 a share. The cash balance remains high in relation to Nu-World’s market value of R545m. If the cash is stripped out of the market value, one could argue the group is trading at just three times the interim pretax profits of R51.5m and about 1.7 times the full year’s pretax profits of R88m. Cheap, undoubtedly. But when will the value be unlocked?
As much as I have fantasised about Sabvest Capital or Hosken Consolidated Investments’ industrial hub Deneb making a play for Nu-World, there has been little indication of corporate action at Nu-World. At this juncture, I’m no longer sure whether it’s better to wait to pay for an even cheaper position in Nu-World (possible, with the distinct lack of market interest) or to be paid to wait at the current price. To be honest, you might even regret both options in the medium term. This is no place for an action man. Famous last words? I bloody hope so …
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