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There is life in agri yet

Little-known TWK delivers good results in challenging conditions.

TWK Investments is that company that you have never heard of but which operates comfortably and profitably in its chosen niche. When the Financial Services Board (now the Financial Sector Conduct Authority) banned over-the-counter trading in 2015, TWK was forced to come out of the woods – so to speak – when it listed on ZAR X in July 2017.

The diversified agriculture and forestry company is not unlike Kaap Agri or Senwes in that it was once an agricultural co-operative that has commercialised its operations and is now run by a professional management team. 

Results for the year to the end of August 2018 indicate that it is profitable and cash-generative.

While it has been a tough year, with local and international political shocks, uncertain economic and financial conditions, extreme grain price fluctuations and gruelling droughts in certain parts of the country, revenue increased by 9.6% to R7.7 billion. The growth was achieved both organically and through acquisitions, supported by TWK’s increasing focus on diversifying its business model – from pure agri into Toyota and Isuzu motor dealerships and filling stations for instance. This, together with improved efficiencies, resulted in a slight increase of 1.7% in operating profit to R331.7 million which equated to an operating profit margin of 4.3%. Profit before taxation increased by 5.5% to R216.3 million and basic earnings per share increased by 18% to 434 cents.

International demand

The timber division, which along with the retail and mechanisation division, is one of the biggest contributors to earnings, had a good year. Revenue increased by 13.3% to R2.7 billion. Despite lower-than-expected sales in the local market, higher volumes were exported to international markets. Earnings before interest, taxes, depreciation and amortisation (Ebitda) remained stable at R188.5 million – though Ebitda would have improved slightly had the average rand/US dollar exchange rate not strengthened.

“There is a growing demand for our wood chips in the export market – in Japan and China in particular, and we expect export volumes to increase in the coming year,” says CFO Eddie Fivaz.

The company is considering the acquisition of another 11 000 hectares of timber forest. Land claims and expropriation without compensation are not a pressing concern. “We are not too negative,” says Fivaz. “There is a big demand for our export product and we would like to secure a bigger supply of timber.” This follows the implementation of a collaboration agreement this year between TWK’s Shiselweni Forestry Company and Royal Silulu Holdings, which aims to develop about 25 000 hectares of new plantations and other agricultural farming activities in Swaziland.

The retail and mechanisation division, which operates 27 retail outlets in Mpumalanga, KwaZulu-Natal and Swaziland, grew revenue by 10.9% from R2.6 billion to R2.8 billion, largely attributable to organic growth and improved market conditions. Ebitda increased by 24.8% from R58.6 million to R73.1 million.

Boost from bumper maize crop

TWK also specialises in the storage, processing and marketing of grain, maize and soybeans. This was the only division to show negative revenue growth. Revenue decreased by 5.2% to R979.9 million; however, Ebitda increased by 34.7% to R27.2 million thanks to high stock levels from last season’s bumper maize crop.

The financial services division reported an increase in revenue of 7.3% from R139.1 million to R149.3 million, partly due to the addition of two new books to its portfolio (in the process growing its footprint, with about 7% in hectares insured).

The motors and tyres division experienced extremely difficult economic conditions, which had a significant impact. New vehicle sales fell and the company lost key accounts in the transport and tyre industry, mainly due to bad debts and liquidations. However, strong sales from the filling stations supported the results. Revenue increased by 13% to R995.5 million and Ebitda by 38.3% to R23.8 million from R17.2 million.

At year-end, the group’s financial position was stronger with total assets having increased by 16.9% from R3 459.5 million to R4.7 billion and net cash by 55.4% to R172.9 million. Return on equity increased from 12.5% to 13.5% against a goal of 17.6%.

The net asset value per share increased by 8.8% to R35.98 at August 31, 2018 compared to R33.06 at August 31, 2017 and the company declared a 75c dividend, 25% more than last year. “We strive for a healthy balance between borrowed and own capital, and the payment of future dividends will depend on the board’s continued evaluation of TWK’s earnings, after provision is made for long-term growth, cash resources, own needs, and other factors,” Fivaz says.

‘Fantastic little company’

“This is a fantastic little company that no one knows about and no one follows,” says independent analyst Anthony Clark. “It is fantastically wealthy, has an enormous asset base and is conservatively run.”

Management is focused on unlocking further value for shareholders. “We are on the lookout for mergers and acquisitions to capitalise on competence, buying power and synergy,” says Fivaz. “We are also focusing on the business of emerging farmers, the development of credit products tailored to customer needs, and plan to increase the fuel station footprint, among other plans.”

The company is trading on a price-earnings ratio of 4x.

“I think there is a lot of value to be unlocked,” he adds.

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