Ben Temkin
25 November 2008
column
Johannesburg — THERE is an object lesson in what I wrote last Friday when I highlighted Hudaco's 17,1% share price rise on Wednesday.
On the basis of the price move, you could have concluded, as I wrote, that investors might have espied value in the share -- even, at a stretch, a glimmer that there was a prospect of a major acquisition in one direction or another.
But the market action did not confirm this. As I pointed out, Hudaco's trading volume was as average as it had been for some time. Unless trading volume changes the share-price trend, you can just about bet your bottom rand that a sudden share price is an aberration and not the market's digestion of a new investment fundamental of the company concerned.
Hudaco's sudden up-flip did not last and at Friday's close its was back to R56,50 with trading volume of about 16000 shares on Thursday and 36000 on Friday.
Although the JSE was a bit firmer on Friday, this did nothing to move the Private Investor portfolio. Its index showed that it still has a paper loss of about 30% since its inception over a year ago.
The investment in Murray & Roberts (M&R) is a striking illustration of how bad the bear market is.
Group Five was one of the possible options for selection in the Private Investor portfolio as an investment in the construction sector. Its share price, since we considered it, has fallen by more than 50%, even worse than the 46% paper loss we have had on M&R.
However, on Friday, Group Five CEO Mike Upton, in an interview with I-Net Bridge, said the company is confident it will meet its double-digit earnings growth. This was despite mining expansion was being cut back and concerns that SA may be forced to have a fresh look at infrastructure spending plans.
Upton said he had no doubt the company could continue to grow over the next three years.
"Double-digit" growth is not much to cheer about relative to earnings growth reported recently by construction companies. It means 10% or better.
In the year ended June 30, Group Five improved its headline earnings per share by 66% to 470c from 283c the previous year. It would be remarkably disappointing -- and surprising -- if, relative to its last reported order book, its earnings growth in the financial year 2009 were as low as 10%.
The bears, on the basis of the company's historic ratings, tell me they are looking for earnings growth of somewhere close to 20% or less. At Friday's market close, Group Five's share price was R26,70. Its historic price:earnings ratio was 5,68, its earnings yield was 17,6% and its dividend yield was just under 4%.
The share price of M&R, the construction counter in the Private Investor portfolio, was R43,90 at Friday close. Its historic price:earnings ratio was 6,94, its earnings yield 12,8% and its dividend yield just over 5%. These ratings tell us the bears like M&R a shade more than they like Group Five. However, they're also not expecting bottom-line earnings growth per share to be better than 20%.
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