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HERE'S an interesting little statistic: building supplies firm Afrimat [JSE:AFT] will pay out over R30m in dividends for the 18 months to end-August 2010.
The R30m payout to Afrimat shareholders is roughly the same sum another building supplies company, WG Wearne, attempted to raise in a rights issue needed to relieve a besieged balance sheet.
Here we have a world of difference between two companies that really ply the same markets.
In truth, Afrimat is the exception to the rule if we scan the underwhelming results of other listed building suppliers: Brikor, Infrasors and African Brick Centre.
But how is it possible that the majority of listed building supplies specialists incur a bruising operational smack, yet Afrimat comes out in such rude health?
We'd put it down to pragmatic and prudent management, most notably the ability not to get sucked into the expansionary hype so prevalent in 2006/2007 in the broader infrastructure sector.
If Afrimat did one thing right, it was maintaining discipline around acquisitions.
The company held off from costly acquisitions when its compatriots were regarded as market darlings for being able to quickly stack up operational capacity.
Even a savvy operator like Group Five got suckered into waaaaaay overpaying for Quarry Cats.
Right now, Wearne is having to offload Portland, a Cape-based business it bought less than three years ago – ironically barely 12 months before the aggregates industry is expecting to see some potentially lucrative action from the N1/N2 Winelands project.
It must be intensely satisfying for Afrimat CEO Andries van Heerden to report that "Processing plants are fully commissioned and well placed to supply large contracts and boost the division's revenue going forward".
While punters can't resist the companies doing the wheeling and dealing, the lesson from Afrimat is that sometimes it pays to watch the counters that meticulously stick to their knitting.
Spur Corporation, Cashbuild, Bowler Metcalf, Nu-World – the top counters that came through from the late 1980s listing boom – testify to the virtues of having an intense operational focus.
Fin24 has argued on more than a few occasions that every listings boom brings a lot of hopeful contenders to an excitable market, but that it usually takes a few years for the few quality contenders to differentiate themselves and emerge from the depressing funk that accompanies the usual new listings meltdown.
The clues are strong cash flows, robust trading margins, a well fortified balance sheet. My gut feel: Afrimat will show all these qualities at the end of February 2011 - notwithstanding screaming headlines that the SA building industry faces the worst downturn in 40 years.
For value inclined investors, it's perhaps noteworthy that Afrimat is trading at a little more than tangible net asset value...
- Fin24
