The just-released annual report from resurgent industrial conglomerate Argent may be regarded as a little tame from a fireworks point of view. Readers may recall that two years ago CEO Treve Hendry, one of the more enigmatic executives in South Africa, went off pop on local politics.
He noted rather starkly: “Domestically, the consequences of the perfect fun show put on by the current elected party has made an absolute mess of the South African markets and is the inspiration to place one’s operations and production elsewhere in the world.”
In this year’s annual report Hendry gave a much more measured overview of operations and steered clear of wry political observations. Fortunately for Argent — and its legion of faithful shareholders — the shift into offshore niches (particularly the UK) has paid off handsomely.
The report shows that Argent’s revenue is now split roughly equally between operations outside South Africa and local business — about R1.3bn on each side. It’s worth noting that the UK alone makes up R828m of the “international” revenue, up strongly from R668m in the previous financial year.
The big difference is in profitability. Local revenue was whittled down to R102m in profit before tax, down a fair whack from the previous year’s R125m. The operations outside South Africa, however, managed R265m (last year: R217m) in profit before tax — reflecting a well-reinforced margin of about 20%.
The not-so-diplomatic investor might ask why Argent bothers with its traditional base of local businesses — which, I might add, consist of more than a dozen smallish niche industrial products and services.
There has been persistent speculation about a radical restructuring at Argent. In the 2024 annual report there were strong hints at structural change, when Hendry argued that “by pursuing a well-structured approach to increase offshore exposure, the group aims to achieve growth by enhancing its competitive position through offshore acquisitions and capitalising on the vast opportunities presented by global markets”.
At that time Hendry told the FM there was still a possibility of reverse-listing Argent’s international operations in London. He also suggested there might be an opportunity to sell off the bulk of the South African assets — aside from Xpanda and American Shutters, which both have strong potential internationally.
It is interesting, then, to note from the latest annual report that Xpanda has locked into the Canadian market, and further strategic expansion should be intriguing to monitor (particularly the pace of the offshore expansion).
But let’s return to the local operations. The big question remains as to whether Argent will be proactive in honing the sprawl of the South African businesses. Certainly, there are indications in the CEO’s review that there are bright spots — Xpanda, American Shutters and Jetmaster, as well as specialist scaffolding business Castor & Ladder.
I would imagine Argent would not shed too many tears if buyers emerged for Hendor Mining, steel business Koch’s Cut & Supply and Pro Crane Services. Perhaps these are too small for Sabvest Capital’s acquisitive industrial associate Apex Partners?
Most encouraging, though, was that Argent’s nonsteel hub — made up of cement group Megamix and Villiersdorp Quarry — saw significant year-on-year growth, spurred by Cape Town’s recovering construction sector. There has even been expansion in batch plant and fleet capacity.
Perhaps it’s time to put up a flashing For Sale sign — though a midsize cement player like Sephaku, which might covet such assets, seems to have enough on its plate for the time being.
In truth, the local operations are more a distraction than a dangerous drag — so there is no real urgency in having to “deal with” lagging assets. I still wonder if Argent might not still go on the offensive in reinforcing Xpanda’s position in the safety barrier market.
This week JSE-listed Trellidor offloaded the underperforming Taylor Blinds and NMC businesses for considerably less than the original purchase price in 2016. Does a slimmed-down Trellidor — which has built a viable niche in the UK — become more interesting to Argent? I think so.
Meanwhile, in the UK, things are going swimmingly. The annual report states that specialist engineering operations including Fuel Proof, Fluid Transfer International and Flofuel Support continue to innovate in fuel storage and refuelling systems, as well as showing growth in the aviation sector. OSA Door Parts and Partington Engineering are expanding into new markets, including a new London distribution hub.
In the fuel-related businesses, Argent is making a point of expanding into electric and hybrid fuel transfer solutions — adding that a modular approach allowed clients to choose between full electric or hybrid systems.
Even more encouraging is Hendry’s observation that the fuel business rental model for refuellers and dispensers is gaining traction in the UK and Europe, generating recurring revenue on a self-financing basis. All things considered, it’s difficult to see Argent’s specialist offshore component not outperforming its traditional local operations in the medium term.
Argent’s shares are trading at roughly tangible NAV of R27 a share and at an earnings multiple of 5.5 and a yield of close to 5%. There is still value to be had here, especially if the offshore niches are enhanced on a low-risk basis.
There will be a notion that the easy money has been made, remembering that the share traded as low as 302c in 2016. Buyers at those levels would have received their entry price in collective dividends paid and declared since the close of the 2023 financial year.
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