Based on its 2025 financial results — excluding the one-off fine relating to its Romanian battery subsidiary — automotive component manufacturer and aftermarket parts distributor Metair ranks among the cheapest shares on the JSE.
At the current share price, the stock trades on a rock-bottom earnings multiple of roughly two to three times. Whether that valuation reflects genuine value, however, is far from clear.
The difficulty stems largely from the state of Metair’s biggest division: automotive component manufacturing. The business supplies parts directly to carmakers in South Africa and accounts for roughly 70% of group revenue.
In recent years the sector has come under pressure from rising imports, particularly from China and India, which are steadily gaining share in the domestic market. Export volumes — historically a key pillar of South Africa’s automotive industry — have also stagnated as legacy manufacturers from Japan, Korea, Europe and the US struggle to maintain market share globally.
South Africa’s competitiveness as a manufacturing base has also eroded over time. Electricity tariffs have surged, while failing rail and port infrastructure has made exporting more difficult and costly. The shift has been stark enough that Morocco recently overtook South Africa as Africa’s largest vehicle manufacturing hub. It is also reflected in the declining local content of vehicles assembled in South Africa, with locally produced components falling from a high of 60% to about 40% at present.
Longer term, there is also uncertainty about whether South Africa’s automotive industry will transition smoothly into the era of electric vehicles. EV production requires different supply chains, technologies and investment priorities. If the industry adapts too slowly, the risk is that global manufacturers may gradually shift production elsewhere.
Metair’s automotive component manufacturing division consists of six operating companies, the largest of which is Hesto. Hesto manufactures complex wiring harnesses and electronic assemblies used in modern vehicles, including instrument clusters and various electrical systems. The business endured several difficult years as it ramped up production for a major new customer programme, resulting in significant upfront costs and operational inefficiencies.
After a restructuring programme, however, Hesto returned to profitability in 2025. Though management believes the turnaround is sustainable, investors are likely to remain cautious until the improvement proves durable.
If the industry adapts too slowly, the risk is that global manufacturers may gradually shift production elsewhere
Recognising the risks in manufacturing, Metair has been working to grow its aftermarket parts and retail segment, which currently accounts for about 30% of revenue but is targeted to reach roughly 40% over time. The logic is simple. While new vehicle production is cyclical and vulnerable to structural change, the aftermarket operation benefits from an ageing vehicle fleet and ongoing demand for replacement parts.
The division includes battery manufacturers Rombat in Romania and First Battery in South Africa, brake systems supplier ATE, and a growing retail distribution network.
The group’s most ambitious move in this area was the acquisition of AutoZone out of business rescue in late 2024. AutoZone is a nationwide automotive parts retailer and wholesaler with 169 locations across South Africa. The strategy is to integrate AutoZone into Metair’s broader aftermarket ecosystem, linking retail distribution with existing battery and brake operations.
For now, however, AutoZone remains loss-making and is running about six to nine months behind the turnaround timeline originally envisaged by management.
Beyond operational issues, the factor that appears to concern investors most is Metair’s balance sheet. The group carries significant debt after several years of investment and restructuring. The pressure on liquidity became evident in 2025 when management postponed nonessential capital expenditure to conserve cash.
At the same time, the company faces unavoidable investment demands. One example is capital spending tied to the model changeover of Toyota’s Hilux programme, which requires new tooling and production capacity. Looking ahead, the group must also address R1.6bn of debt maturing in 2027.
Another uncertainty is the €20.2m fine imposed by the European Commission on Rombat for alleged anti-competitive behaviour between 2004 and 2017. Metair could be jointly liable for €11.6m under EU parent-company liability rules. The group has appealed the ruling — a process that could take up to two years — but the case still adds pressure to an already stretched balance sheet.
Operationally, conditions in the manufacturing division remain challenging. One of Metair’s key original equipment manufacturer customers has recently reduced its production forecasts due to weaker market conditions. For a business with high fixed costs and significant operating leverage, even relatively small volume declines can have a disproportionate impact on profitability.
At the end of the day, though, valuation matters. At slightly above two times earnings, the market is already pricing in a substantial amount of bad news. If Hesto’s turnaround holds, AutoZone reaches profitability and the group manages its refinancing, the current share price could offer meaningful upside.
Raymond Steyn
