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Johannesburg - It seems the market was right in talking up the share price of specialist retailer Verimark [JSE:VNK] , which has moved from around 40c at the end of 2009 to 68c on Wednesday evening.
A trading update issued by Verimark on Thursday morning suggested the retailer - which markets its products directly and through its own satellite stores - has finally gained traction in its prolonged turn-around effort.
Verimark reported that earnings would be substantially improved in the year to end-February 2010, compared with those achieved during the previous full-year reporting period.
The company estimated headline earnings and basic earnings would be "at least" 9.3c/share and 9.2c/share. In the previous financial year Verimark posted a basic loss of 3.4c/share and 3.3c/share.
CEO Michael van Straaten attributed the improvement to better than expected sales - especially during the last few months of the financial year when sales grew by 47% over the previous year.
Van Straaten confirmed earlier speculation on Fin24.com that improved sales were driven by new product ranges as well as improved space utilisation at existing retail outlets.
He said Verimark also managed to institute tighter cost controls - noting that the company's new management team had settled in well.
The trading update will be welcomed by shareholders - most notably Brait - which fought off an attempt by Van Straaten's family trust to buy out minorities and delist the company last year.
Based on the earnings forecasts Verimark - at Wednesday's market close - was trading at a forward earnings multiple of 7.5 times. At the buyout offer price of 50c/share, Verimark's forward earnings multiple would be a very modest 5.5 times.
Van Straaten stressed that the attempted delisting should not be viewed as opportunistic in light of Verimark's latest trading statement. "That decision was taken at a particular time, and at that time the business was really not in good shape."
He said up until August the business was still running at a loss, and faced some serious cash flow issues.
"But if I knew then what I know now I would not have proposed a delisting?"
Van Straaten explained that from November onwards, businesses started picking. "It's been bloody pleasing. We had a really strong Christmas, and it's carried through into January and February."
Van Straaten clearly thinks the turnaround has materialised. "The uncertainties around the ability of the new management team to effect the turnaround is now something of the past given the improved trading results over the last few months. The company remains cautiously optimistic that the long awaited turnaround is firmly on track."
Verimark will report its full year results in May.
- Fin24.com
