This is certainly the winter of my malcontent. In mid-September Cape Town is cold and wet, and prospects for the next few weeks look decidedly bracing. I’ve lived down south for more than 35 years and this winter even beats a particularly dank and damp year in the early 1990s when my Claremont cottage flooded to just below the electricity plug points, water licking at my precious CD collection.
I spent most of last Saturday’s tennis league encounter at Pinelands raving like King Lear into the icy north-wester sweeping straight down the courts. The duffle-coated gentry, walking their pooches past the courts, were not impressed by this uncourtly behaviour, particularly so near the quaint Town Hall. Anything more than a gentle wrist roll and my service would float well beyond the line. Lining up a smash was near impossible in the swirls and it was open season for the Pinelands lobsters.
Distraught and clearly worried about losing the important fixture, my partner eventually dangled a big carpaccio: “I’ll buy you supper at Magica Roma if we take this set.” With that rustic Italian eatery almost visible from court four, I dutifully gutsed it out.
Would I need a similar incentive to stick it out with Caxton & CTP Publishers and Printers? Probably not. But the market is still giving this redoubtable business the cold shoulder. Caxton remains an eye-popping value proposition — much more so, I think, than smaller rival Novus, where small-cap punters do show a keen interest.
Caxton remains an eye-popping value proposition — much more so, I think, than smaller rival Novus — where small-cap punters do show a keen interest
Caxton, I suspect, still carries the stigma of being a printing and publishing concern. But segmental analysis will show the group makes more money from packaging (and its small stationery segment) than the two traditional operations reflected in the company title. In the year to end-June packaging and stationery made up 51% of Caxton’s top line (generating a not insubstantial R3.55bn) and at operating profit level (after depreciation) the contribution expanded to 56%.
Packaging should make a larger profit contribution in the years ahead — not because print activities are so stagnant (revenue actually increased from R3.3bn to R3.42bn) but because the potential to increase margins is skewed towards the vibrant sprawl of niche packaging operations. For the record, operating profit (after depreciation) from printing and publishing activities fell from R352m to R296m.
I do note, however, that Caxton is not exactly shying away from its core business. In the past financial year Caxton bought a new litho printing press for its magazine and textbook printing operation in the Western Cape. It also bought the remaining 50% shares in associate Mooivaal Media (for R7.8m) and the outstanding interest in Capital Media (R14.7m).
Frankly, there is not a lot to complain about in the Caxton results. I would not have been surprised if there was a marked slowdown in the second half — but, if my calculations are correct, the group actually earned more in the second half than it did in the 2022 financial year. Cash flow, at R725m, equates to more than 200c a share and the cash pile sits at about R1.9bn or 523c a share. The share price, though, has shifted up only about 5% in the past three months and is up about 11% so far this year.
Caxton trades on a trailing earnings multiple of 5.4 times and a dividend yield of 5.5%, a combined gauge that will appeal to deep-value acolytes. Caxton’s value proposition deserves to be unpacked.
The current share price is telling you that the market values Caxton’s printing, publishing and packaging operations — which generated R725m in cash flows — at just 75c a share
At last week’s prices, the group’s 34% stake in listed packaging group Mpact is worth about R1.5bn. Add the cash holding of almost R1.9bn to the value of the strategic investment in Mpact and you get a figure equivalent to 940c a share.
The current share price is telling you that the market values Caxton’s printing, publishing and packaging operations — which, remember, generated R725m in cash flows — at about R270m, or just 75c a share. This seems an insulting rating for a group that is managed conservatively, does not make reckless capital allocation decisions and is finding decent growth opportunities in the packaging sector.
What I do like about Caxton is the attention to detail in its financial results commentary. For instance, the group invested in a new laminator for its flexible packaging operation (to support growth in the wine bladder market), a new printing press for the Western Cape packaging operation (for operational efficiencies), extra equipment for the label operation in Gauteng (boosting capacity and efficiencies) and new cup-forming equipment (cornering quick service restaurant markets and entering the coffee cup market).
Caxton also disclosed smallish acquisitions worth collectively less than R145m: the Amcor bag-in-a-box-bladder and tyre-liner business (R102m) as well as the lamination business of Allflex CC for R20m. It upped its shareholding in JSE-listed Cognition by R17.7m to a commanding 75.4%. It’s as compelling as ever. I’d be more than happy to accumulate Caxton for the old retirement fund at current levels.
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