AFTER commissioning its Canelands manufacturing facility earlier last year, coatings firm Chemical Specialities has tripled its manufacturing capacity and increased its profit margin to 43% over the interim period to September 2009. Aggressive cost containment resulted in only a 15% drop in net profit to R23m (7,44c/share) despite a 32% decrease in revenue to R218m.
Bucking the recessionary environment, ChemSpec generated a healthy R41m from operations, down from R42m in the corresponding period. Although the company's cash position was still negative - with a bank overdraft of R82m - it was a significant improvement on the negative R95m it reported in the previous period.
Further cost containment is expected from the consolidation of ChemSpec's operations at its Canelands factory. Together with the expected resurgence in economic activity and vehicle sales, ChemSpec expects to take full advantage of the efficiencies offered by its more technologically advanced plant.
The increased focus on the automotive sector coincided with the severest recession that sector has seen in recent years. It's at times like these that companies prove their efficiency, and ChemSpec has managed to produce a profit not significantly down on that of the previous corresponding period, which can only bode well for when things turn for the better.
At its current price of 82c/share, ChemSpec might not be exactly cheap. However, patient investors know an earnings multiple of 11 times its profit is approximately closer to the correct price at the bottom of the drop in vehicle sales.