Industrial group Reunert has its supporters among local stock punters, but the ugly truth is that the share price has gone backwards over 20 years. The only consolation is that shareholders have collected some useful dividends along the way.
This share has been sold to the market at different times as a growth stock, a value stock, an infrastructure play, a renewable energy beneficiary and an ICT compounder, and recently it has been presented as a defence counter. Yet the company has seldom sustained the earnings momentum needed to justify a lasting rerating.
The deceptive pattern was visible again in 2024, when the share price rallied above R80 before falling back sharply after the November results disappointed. It was also evident in the run-up to the interim results released in May, in which the market’s expectations were once more not met. Revenue from continuing operations edged up 1% to R6.3bn, but operating profit fell 23% to R453m and headline earnings declined 22% to 185c a share. The group still ended March with net cash of R383m, but the market wanted proof that Reunert’s latest growth narrative was translating into earnings. It did not get that.
New CEO Anthonie de Beer made no attempt to sugarcoat the numbers. “The first half was disappointing and below the level we expect from our businesses,” he said.
The long-term story is best understood through the three main segments. Electrical engineering, historically the industrial backbone of the group, has gone severely backwards in profitability. ICT has remained resilient and cash-generative, but not spectacular, and has required corporate action to keep the growth story alive. Applied electronics, especially defence, has become the strongest growth driver, but it is still too small relative to the group to offset disappointment elsewhere.
The most glaring deterioration is in electrical engineering. In 2006, the segment generated R552m of operating profit on revenue of R2.57bn, an operating margin of roughly 21%. In the latest interim period, revenue rose 2% to R3.5bn, but operating profit fell 40% to R138m. The segment margin contracted from 6.6% to just 3.9%. This is an extraordinary erosion in economics. Electrical engineering still accounts for about 55% of group revenue, but only 25% of group operating profit.
Cable manufacturing no longer looks as attractive as it did in the mid-2000s
The division manufactures and supplies power cables, circuit breakers, electrical protection products, control and automation products and copper beneficiation solutions across Sub-Saharan Africa and selected offshore markets. On paper, that should be an attractive portfolio for a country that needs new transmission lines, municipal grid upgrades, renewable energy connections and industrial investment. In practice, the economics have deteriorated.
Several factors explain the margin pressure. Higher copper prices can be partly passed on, but timing and contract terms still affect margins, working capital and cash conversion, while price volatility can prompt customers to delay orders. At the same time, higher electricity, labour and overhead costs have collided with weak volumes, making fixed-cost absorption harder. Add constrained municipal budgets, poor business confidence and years of delayed infrastructure spending, and cable manufacturing no longer looks as attractive as it did in the mid-2000s.
Import pressure may be adding to the squeeze, especially in lower-end and more commoditised cable categories. A recent report on low-voltage cable imports said South African import volumes jumped 18% year on year while average prices fell 20% despite rising global raw material and logistics costs. It also flagged concern over very low-priced Chinese shipments, which the report said could indicate illicit trade. Reunert’s cable exposure is broader than standard low-voltage cable, and some products are likely better protected by specification, infrastructure requirements or customer relationships. But it is still notable that Reunert’s own medium- and low-voltage cable volumes fell 14% and 20% respectively.
The bright spot in electrical engineering was circuit breakers, with stable South African volumes and strong export growth, though margins were squeezed by the stronger rand and higher US tariffs. Management expects a better second half, helped by a strong US order book, a weaker rand and lower tariff pressure. Reunert’s Zambian cable business should also improve as contracts are repriced for higher raw material costs and new orders come through. But the larger recovery in domestic cables still depends on real infrastructure spending. The transmission development plan is gathering momentum, though management expects a more meaningful acceleration only during calendar 2027.
ICT is the steady part of the portfolio. The segment houses Reunert Connect, IQbusiness, Nashua and Quince Capital, spanning business communications, systems integration, workspace solutions and rental-based finance. In the first half of 2026, revenue slipped 4% to R1.86bn, but operating profit rose 1% to R321m. That made ICT the group’s largest profit pool, contributing 56% of operating profit from only 29% of revenue.
Applied electronics was the standout performer. Defence revenue rose 9% to R1.03bn and operating profit jumped 41% to R110m, helped by better execution, improved capacity utilisation, production efficiencies and effective forex hedging. Fuses performed well on export orders and secure communications benefited from stronger local demand and a large export pipeline, while logistics was held back by delayed original equipment manufacturer platform orders that management expects to recover in the second half.
Former CEO Alan Dickson noted on the results call that defence intellectual property may not be the biggest contributor to revenue, but is “absolutely critical”, because successful development work can unlock long-term production orders. That distinguishes defence from more fashionable growth areas such as energy transition, AI and digitalisation, where the competition is crowded. Defence relies on certified technology, long qualification cycles, export permits, proprietary designs and entrenched customer relationships, giving Reunert something of a moat.
Much will depend on the new CEO. So far, he has not promised a radical strategic reset, but rather sharper execution of existing priorities, including greater internationalisation to reduce Reunert’s exposure to South Africa’s low-growth economy. His private equity background also differentiates him from Dickson, who was an engineer and longtime Reunert stalwart and led the group for 12 years.
The company now has a CEO who speaks the language of investors. The market will want to see that translated into earnings.
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