Recent market volatility — until the ceasefire in the US war against Iran — made the JSE shift to a historic peak at the end of February, then slump by 14% to its lowest point and subsequently rise 10% off its March 20 low. Crazy stuff, and a period when investors needed nerves of steel.
In the same period, mid-cap blue chip Reunert, the industrial, defence and technology stock, barely moved — and actually trended sideways — perhaps indicating the resilient characteristics investors see in the counter. Year to date, Reunert is plus 4% and, on a 12-month perspective, 18% ahead.
Reunert is considered an undervalued stock and at present trades on a historic earnings multiple of 10. It is a solid dividend payer, given its debt-free balance sheet, reflecting a robust dividend yield of 5.9%.
However, consistency in operational performance has historically not been a key trait in the company. While the various subsidiaries all have a tempting story, they often fail to fire on all cylinders at the same time.
Investors have long seen Reunert and its infrastructure power cabling and circuit breaker business as a geared play to economic growth amid hopes that the South African government will open its coffers to invest in upgrading the domestic electricity transmission and municipal reticulation network. But investors know the government coffers, long on talk of infrastructure spend, have been found wanting, leading to underperformance from Reunert’s electrical engineering unit, which operates with significant latent undercapacity.
The electrical engineering division comprised 53% of Reunert’s financial 2025 group revenue of R14bn — but the unit’s profit slumped 31% to R461m as weak South African gross domestic fixed investment hit.
The recent surge in copper prices has also been a double-edged sword for a cable manufacturer, increasing the value of work in progress and the inventory, but raising the cost of the finished product in an already constrained economy.
The board, supported by outgoing CEO Alan Dickson, was keen for some fresh perspective on the business
Reunert’s push into enhancing its technology businesses via the acquisition of IQ Business in 2023 aimed to bolster its communications and ICT solutions, including fibre optics and data centres, capitalising on South Africa’s digital transformation. Yet the integration benefits in various parts of Reunert have been slow to materialise. Comprising 28% of group revenue, in the past financial year profits dipped 9% to R644m.
A bright spot has been defence business in applied electronics, which supplies turnkey systems for border security and military communications, often backed by government tenders with major contracts in the Middle East and a solid and growing order book. Comprising 20% of group revenue in financial 2025, it saw a 7% dip in sales, but operating profit rose 21% to R500m with record financial performances for the fuse and radar clusters.
So, despite the mixed operational performance, why is IM highlighting Reunert as its pick of the month?
Last year was a tale of two halves. A soft first half and recovery in the second half, with retiring outgoing CEO Alan Dickson leaving the business debt free, with R5bn of offshore revenue and good momentum in the defence, export fuses and electrical engineering clusters.
Former Ethos private equity CEO Anthonie de Beer became CEO on March 1 and is the first outsider to take the helm in decades. The board, supported by Dickson, was keen for some fresh perspective on the business, and De Beer’s endeavours in value unlock and creation in the sphere of private equity have certainly raised hopes that some private equity-style magic will be sprinkled over Reunert.
One area where IM sees solid potential is in the defence cluster. Here, partnering or a strategic alignment with a larger player could unlock greater value to a unit hidden in plain sight within Reunert, where profits have risen 400% over the past five years. The company itself highlights the ongoing growth of the order book, alongside the potential of 73% of the order book being derived from offshore, with increasing opportunities in the Middle East, possibly enhanced by the recent conflict.
With the counter well off its late-2024 high of R80 as the market’s great expectations were rewarded with lacklustre earnings, the company — with a market cap of R12.3bn, group revenues of R14bn and profits of nearly R1.4bn — is a reasonably well-run business, but perhaps in need of a polish.
Reunert, in many investors’ minds, is a stock that needs a good shake-up, increased value realignment and tough choices made to push the counter back towards a growth path to unlock value. De Beer’s tenure and initial report-back on the coming March interims and his strategic outlook will be keenly awaited. At R67.66, IM places faith in the new jockey to take Reunert from the middle of the pack to the front of the field.
Anthony Clark
