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Austro Group comes on at 80% premium

Investors see woodwork machines as sexy

Austro Group made its debut on the main board of the JSE at R1,62 today and quickly forged above R1,80 – an 80% premium to the R1 at which shares were placed ahead of the listing.

That price gave the company a market capitalisation of R590,9m a distinct premium on the R400m estimated by the promoters before the listing.

The company imports and distributes woodworking machinery and aims at headline earnings of R33,4m in the year to August 2007 – up from R27,6m last year.

The R1,80 share price is 20,2 times the forecast earnings figure of 8,9c a share and 21,4 times historical headline earnings of 8,4c a share. It is a steamy 18,2 times net tangible asset value.

The pro-forma income statement shows turnover of R175,9m, operating income of R41,7m and taxed profit of R35,5m.

Today’s shareholders take comfort that last year the company made good profits (R40,6m before tax) and paid R13,1m in tax, which indicates real profits.

I asked MD and founder Daniel Rothlisberger how a business so apparently mundane could command such a rating. He pointed around us at the JSE building.

“Look at all this fine woodwork. You will find it in every building from a big hotel to the kitchen cabinets in a middle class home to the roof trusses in a mass housing scheme. In every building there’s a huge amount of woodwork. Builders and carpenters need our machines to produce this stuff.”

Very little woodwork in a building can be imported. It is usually custom built to an architect’s plan.

Rothlisberger acknowledged that business has been superb for the past three years, as the building industry has boomed but is full of confidence for the immediate future.

He sees better profits in improving the company’s tooling capacity and in the country’s huge capex programme that is just beginning.

At the listing breakfast, I sat next to two gentlemen who described themselves as enthusiastic investors. Said one: “We put a lot of money on the table because we have faith in the Chairman David Brouze.”

Brouze, a CA(SA) and the brother of the CEO of listed Busby, was embarrassed at the compliment. His interests, other than Austro and Busby, are private but according to his admirers, have done exceptionally well.

Rothlisberger has run Austro since 1981. Initially, it was tiny engineering shop serving the DIY market. It grew from there. Brouze says the secret of its success is that it does not just sell woodworking machinery.

According to Brouze, the head office and showroom are as clean and shiny as a hospital, reflecting much that is good underneath.

“It is uniquely well managed. It has an ethos and a culture built on brands and service levels. In seven of the past eight years, it has grown revenues by more than 20%.”

Austro has the exclusive agency for a number of the world’s best rated machines. It sells, services and maintains these. It also has tool factories in KZN and the Western Cape, which produce consumables, such as blades, for the machines.

Austro claims 21% share of its market. It has shareholders’ funds of R43m and negligible debt. It is exposed to currency movements but covers all orders forward. Though it prefers a strong rand, the company has prospered even in times of rand weakness.

Of the new R44m raised in the listing R20m will go into the company and R24m to directors cashing in.

After the listing, Brouze will hold 30,9% of the equity, another director Brian Downs 10% and Rothlisberger 5,6%. So, steamy rating notwithstanding, the directors still have a strong interest in future performance of the company.

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