Buckets of tears were spilt at the weekend. Investors and tennis fans alike tend to get emotional about the Fed. It has certainly been a few tough days — the end of two great eras, one might argue.
Global investors were saying choking farewells to growth prospects, and sports fans were weeping as they watched Roger Federer, the second-greatest tennis player of all time, playing out his final professional points.
I’m not one for waterworks. But I did weep once as an investor and once on the tennis court. On the former, I fell hard for mining group Sallies, and I was heartbroken (not to mention out of pocket) when its cash-hungry fluorspar endeavours never came up to spec. On the tennis court, I came close to a complete emotional breakdown when an inexperienced but talented partner served eight double faults at 5-4 in a social game that carried a deep-seated grudge.
Fortunately he served as many aces as doubles, and I had to discreetly mop up tears of joy when we finally took the set after the umpteenth deuce.
As a youngster I reduced a few opponents to tears at my favourite venue, the school’s B court, which sat snugly alongside the shooting range. Try keeping your composure with volleys of live rounds echoing around the court. I would always reassure my opponents that our shootists were reliable and accurate, though I could not vouch for the other school’s D team. I recall once finishing a match in under three games, my opponent reduced to a jabbering wreck and waving a hanky from the far end of the court. Seems part of the shooting range’s sand barrier had been blown away overnight and the tin screen was being percussed by any slightly elevated shots. It would have tested the composure of even that great iceman, Björn Borg.
How the directors deal with the Choppies balance sheet quandary will be fascinating to see
Speaking of composure, readers should know that I remain largely invested in Botswana-based retailer Choppies Enterprises — one of my scary stock picks from a few months ago. There is still a balance sheet to exorcise, with some chilling ratios likely to spook institutional investors. But the business is holding a decent enough margin, generating satisfactory cash flows and steadily expanding its footprint.
The share price, which trades on a multiple of six, is probably still too low for thoughts of a rights offer to be entertained. How the directors deal with the balance sheet quandary will be fascinating to see. The smattering of profit I took on Choppies was mobilised to start a position in another Botswana-based company, fast-moving consumer goods brand management specialist CA Sales.
Strange debut
CA, recently unbundled from PSG Group, had a strange debut on the JSE. The shares raced to as high as R17.50 in July before trundling unceremoniously down to current levels of about 550c. I think there’s decent value at the current levels, and selfishly hope the range remains so I can snaffle more stock.
I managed to catch the CA presentation last week on the Unlock the Stock platform in the hope of getting an inkling of what initially attracted PSG’s Alpha subsidiary to the story.
For one thing, it’s clear the company has considerable expansion opportunities from its existing base in Botswana. CEO Duncan Lewis has made it clear the group intends presenting a more balanced contribution by geographies over time. In this regard, CA Sales is targeting a doubling of revenue to R20bn by 2026. Lewis was quick to quash any thoughts of top-line vanity by stressing the revenue target was “a proxy for sustainable growth”.
In terms of assessing the realism of this growth target, it is worth noting that CA Sales has grown revenue of R5.5bn at the end of 2018 to a probable R10bn at the end of financial 2022. The group also offers shorter-term sales targets of R13.5bn in 2024 and R17bn in 2025. There is further reassurance that the top-line growth will not be purely acquisition driven, with plenty of organic growth to pursue as well as a determination to win new clients and seek out new partners. For the record, CA Sales says it has historically made acquisitions on earnings multiples of between four and six in the past — but Lewis concedes: “Good businesses cost money, so we might pay more than that.”
Interim earnings (to end-June) came in at about 30c a share. CA Sales’ earnings profile is skewed to the second half, which means that if last year’s second-half performance is only slightly better we should see earnings topping the 70c a share mark for financial 2022. The dividend policy sets the annual distribution at 20% of headline earnings — which would make for an acceptable yield for a growth stock on a lowly multiple of about seven. You might well bawl your eyes out if you miss this lovely little regional hedge.
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