Published Date: 2019-07-05 | Source: INCE|Community | Author: Sifiso Skenjana
One of the grandpas on the stock exchange, Reunert was founded in 1888 by Theodore Reunert and Otto Lenz, and listed on the JSE in 1948. It has operations primarily in South Africa, and some satellite operations in Zambia, Australia, Lesotho, Sweden, USA, and Zimbabwe. The company is home to some known brands like Nashua Communications, PanSolutions (distributor of Kyocera and Panasonic) and Nanoteq.
Business Model: Reunert holds interests in Electrical Engineering, Information Communications Technologies (ICT) and Applied Electronics. Their electrical engineering business houses companies that provide infrastructure like electrical cables and aluminum conductors and copper rods. I can already see the non-engineers rolling their eyes. Lol. Their ICT business provides voice, data, telephony, connectivity and specialized product distribution solutions. And lastly, their applied electronics divisions develop and manufacture high-tech electronics like printed circuit boards, cryptographics, and electronic fuze technology. Simply, this company makes and distributes all the electronic things you use and never knew you needed.
Results (Year-end Sept 2018): The group reported a 3% increase in operating profit, 4% increase in dividends and a 20% increase the return on capital employed. Taking a segmental view - the electrical engineering business saw a 37% decline in operating profit on the back of a depressed infrastructure investment environment. The ICT business reported a 13% growth in operating profit and the applied electronics with a 28% increase in operating profit.
Growth Prospects: The company remains well positioned to benefit from the global growth in the use and investment in renewable energy (through their solar solutions). Reutech Solutions continued to secure new long term contracts locally and multi-year orders for their Fuze technology business. Their ICT business has managed to improve its product mix despite operating in quite a competitive office automation segment within the ICT market. The electrical engineering business generally relies on growth in infrastructure spend, and as a result has been under some pressure given the muted growth in construction projects in the economy. The electrical engineering still makes up a significant portion of group revenue, so a depressed outlook for it generally puts pressure on the broader group revenues.
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About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.