Argent on the up

Move offshore pays off. Steel beneficiation group is a near 70% rand hedge.
Solid earnings growth for the past four reporting periods. Image: Vincent Mundy, Bloomberg

Bending and bashing steel is not a glamorous business. For Argent Industrial, however, it has become a very profitable one. The steel-based beneficiation group’s share price rallied smartly to close up 8.82% to R10.12 on Thursday.

This spike in its share price followed it putting out a trading update saying headline earnings per share (heps) will be up 54.6% and 74.6% for the year to end-March.

This will see the group’s heps rise from the 133.4c it made in 2020 to between 206c to 232c. The expected rise in earnings will effectively mean heps will double from the 104.4c it made in 2019.

Argent Industrial

Group of steel

Anthony Clark, independent analyst at Small Talk Daily Research, who has long backed Argent, says the group’s performance has been outstanding.

“This is a stunning achievement for a micro-cap that has consistently delivered solid earnings growth for the past four reporting periods,” he said in a research note published on Argent’s website.

Clark says Argent has worked hard at improving efficiencies and cutting cost.

Its expansion abroad has also paid off. He says its UK operations such as Fuel Proof and Partington did well, despite a strengthening rand knocking the company.

It also got a boost from a domestic steel shortage and higher prices supporting its Phoenix Steel division.

New tricks

In his note, Clark says though has followed the group for a while, he was not sold on it.

“I’ve covered Argent Industrial for some 20 years. It’s been a volatile and colourful ride.”

But after getting an in-depth briefing about the group from CEO Treve Hendry in March 2018, he was convinced that under his watch Argent was going to turn over a new leaf.

Between 2018 and 2019 it disposed of its “low margin, capital-intensive divisions” and moved into “value-adding, higher-margin beneficiation”.

It also moved offshore, buying several UK-based companies

“It is these offshore interests, all via acquisition, that have driven Argent’s profits and earnings growth for the past three years. Argent is a near 70% rand hedge. That may surprise many. That percentage will only rise over time.”

From Clark’s perspective, this move of selling off low margin business, further expansion abroad, and continuous share buybacks have increased the group’s value.

“A combination of improved business performance, offshore earnings aided by increasing rand hedge qualities and the benefits of material share buybacks powered Argent’s results again.”

The group’s balance sheet also makes it an attractive investment – it has retained earnings of R701 million, and no bank overdraft.

“At this stage, if my assumptions are correct on trading, asset sales, and cash realisation, Argent remains an attractive asset to own for investors especially if dividends are resumed in replacement to share buybacks,” says Clark.

Still some upside

All of this has seen Argent’s share price rally over the past three years. In May 2018 it was trading at R3.75 and has risen by close to 150% to R1.10 since then.

Clark thinks it can go even higher.

At the end of January 2021 he set a target price of R10.10 when it was trading at R8.50 a share. It took just three and a bit months to reach this price.

Clark has now set a one-year target of R14 a share and maintains his ‘buy’ recommendation.

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