Ben Temkin
10 November 2009
column
Johannesburg — THERE has been just one bit of news from the Stock Exchange News Service (Sens) on one of the counters in the Private Investor portfolio, Reunert.
The company's latest trading update now indicates that normalised bottom-line earnings per share for the year ended September 30 will be slightly higher than reported in its previous update, but are still to be expected to be 18%-23% lower than last year.
Headline earnings and basic earnings per share , however, are expected to be almost unchanged year on year.
The improvement in headline and basic earnings is because of noncash mark-to-market profit on the put option Reunert has in respect of its investment in Nokia Siemens Networks.
I was reassured, though not excited, by the update. It was encouraging enough to induce Jean and me to accumulate some more shares in our main portfolio. The fact that one of its assets has added value is a positive investment fundamental.
I plan, of course, to write more on Reunert when the year-end results are published. Today, though, my focus is on Clicks Group (Clicks).
I reviewed the company in Forecast Factory columns in January and June 2007, when its name was New Clicks Holdings ( Nuclicks ).
I was prompted to write more on Clicks for two reasons. First, I was impressed by the company's performance in the financial year ended August 31. Secondly, I was curious if I had underestimated the company's management investment fundamentals when it was bypassed as a possible buy for the Private Investor portfolio.
It is salutary for a market commentator to find some egg on the face, even when the egg- splattered face is the consequence of an unexpected global economic crisis. Surely, as I've written before, Murphy's Law -- if the worst can happen, it will -- applies? All too unfortunately, Murphy's Law is part of the body of investment fundamentals.
I didn't expect global economic crisis and economic recession. If I had expected this I had no empirical evidence to judge on how well or badly Clicks' management would manage in a negative market environment.
When I wrote in June 2007, Clicks' share was trading at R16 and the objective in the column was to make a forecast on the future share price. Using the return on assets managed model, I calculated that in the financial year 2008, the company's return on assets managed could be 16,2%.
This translated into possible bottom-line headline earnings per share of about 130c. My guesstimated forward price- earnings ratio was 12,3, the earnings yield was 8,12% and distribution yield was 3%.
These were challenging ratings. However, this was a bull market, with only faint rumbling from the bear lairs. My forecast was that the share could reach R18 within a year and, by November 2007 it reached that price, before falling back below R14 in January last year. Since March, when the share price fell to just below R13, it has been climbing and on Friday it closed at R24,60.
At a share price of R24,60, on diluted headline earnings per share of 165,6c this year, the historic price-earnings ratio is 14,8, the earnings yield is 6,7% and the distribution yield is 3,4%. Challenging ratings again and well worth another forecast.
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