|
Related Topics |
Background and overview of Rolfes (RLF)
The Group manufactures and distributes a diverse range of market-leading, high-quality chemical and organic products to various industries. These industries include Agriculture, Food, Industrial and Water division. More details about each of these divisions below:
- The Agricultural division develops, manufactures and distributes products that promote plant root, and foliar health, soil nutrition, disease prevention and control and various other agricultural remedies.
- The Food division distributes imported and locally manufactured products to the food and beverage, bakery, dairy, pharmaceutical and cosmetics industries.
- The Industrial division manufactures and distributes industrial chemicals including various organic and inorganic products including additives, in-plant and point-of-sale dispersions, leather chemicals and solutions, solvents, lacquer thinners, pigments, surfactants, cleaning solvents, water treatment products, creosotes and waxes.
- The Water division provides specialised water purification solutions and products to the industrial, mining, home and personal care markets. Additionally, the division manufactures and distributes pure beneficiated silica to the mining, metallurgical, fertiliser, water-filtration and construction industries.
Scroll over or click on the funnel chart to get more details of RLF's latest financial results
Financial review:
The net profit margin achieved by Rolfes amounted to 5.9%. This is not the greatest profit margin achieved (but is ok considering their margins earned in the preceeding financial year of 4.2%). The revenue increase of 20.5% is encouraging to see though. Lets hope that higher margins can be extracted from the higher turnover number, as currently the revenue increase of 20.5% is counteracted by cost of sales increasing by 19.8%
The pie chart below shows the contribution of RLF's different divisions to their revenue and pre-tax profit earnings.
From the pie chart above it is clear that the majority of RLF's turnover is made from their Industrial and Food divisions. These two divisions making up over 70% of their revenue. What is interesting to note is that their Industrial division is the biggest contributor to revenue but only the 2nd biggest contributor to operating profits (food being the biggest contributor to operating profits with it bringing in 38% of operating profit). While the Industrial division brings in almost 38% of revenue, it only contributes 29% to operating profit. Their Agriculture division on the other hand brings in 20% of revenue but contributes 25% to operating profits. Clearly showing higher margins are earned on the Food and Agriculture divisions.
Basic earnings per share for RLF came in at 53.1c (putting them on a PE ratio of 6.9). Their dividend for the full year amounted to 6c placing them on a dividend yield of 1.64%. From a PE ratio perspective their shares do look attractive as the multiple is very low (but then again so is their net profit margin). RLF is paying a dividend all be it a small one, which is encouraging as 12months ago no dividend was paid out to investors.
Basic earnings per share for RLF came in at 53.1c (putting them on a PE ratio of 6.9). Their dividend for the full year amounted to 6c placing them on a dividend yield of 1.64%. From a PE ratio perspective their shares do look attractive as the multiple is very low (but then again so is their net profit margin). RLF is paying a dividend all be it a small one, which is encouraging as 12months ago no dividend was paid out to investors.
Cash generated from operating activities amounted to R104million (up from R39million the year before). This amounts to roughly 70c a share. In addition to this cash and equivalents on the balance sheet amounted to R49.9million (or 33.7c a share). Thus it's current share price is made up by around 10% in cash.
Worryingly is the large build up in RLF's inventories, and their trade and other receivables. Inventories increased from R215million to R343.6million (or 59%). Are they struggling to move their stock on to their clients? Another question is whether clients are struggling to pay them back? Trade and other receivables increased from R202million to R293million (or up 45%). Seems like they both struggling to move stock based on increase in inventories and clients are not exactly in a rush to pay RLF for goods and services billed to them.
But looking on the flip side it does not look like RLF is in a hurry to pay for goods and services they received. On their balance sheet under liabilities Trade and other payables increased from R163.2million to R274.9million (or up 68.1%).
Guess it's common practice where businesses use supplier accounts like an overdraft facility and hence we see RLF both being owed money and them owing money to others. But shareholders and potential buyers should keep in mind that RLF owes a lot of money and a lot of money is owed to them while at the same time they are experiencing a big inventory build up (which either shows they struggling to move product, or that they are optimistic that demand for their products will increase in future hence they keeping more stock).
Worryingly is the large build up in RLF's inventories, and their trade and other receivables. Inventories increased from R215million to R343.6million (or 59%). Are they struggling to move their stock on to their clients? Another question is whether clients are struggling to pay them back? Trade and other receivables increased from R202million to R293million (or up 45%). Seems like they both struggling to move stock based on increase in inventories and clients are not exactly in a rush to pay RLF for goods and services billed to them.
But looking on the flip side it does not look like RLF is in a hurry to pay for goods and services they received. On their balance sheet under liabilities Trade and other payables increased from R163.2million to R274.9million (or up 68.1%).
Guess it's common practice where businesses use supplier accounts like an overdraft facility and hence we see RLF both being owed money and them owing money to others. But shareholders and potential buyers should keep in mind that RLF owes a lot of money and a lot of money is owed to them while at the same time they are experiencing a big inventory build up (which either shows they struggling to move product, or that they are optimistic that demand for their products will increase in future hence they keeping more stock).
A few financial ratios to mull over for Rolfes (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 1 (more than 2 shows high levels of financial leverage).
- Current Ratio: 2.3 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities). Strong ratio for RLF
- Quick Ratio: 1.16 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt). Affected negatively by their massive inventories
- Return on Assets (ROA): 7.28%
- Return on Equity (ROE): 14.54%
- Net Profit Margin: 5.87%
- Dividend Yield: 1.64%
Valuation:
RLF seems intent on expansion both organically and by acquisition (not sure with their current cash position an acquisition will take place using available resources. This can signal to them issuing shares to obtain cash to acquire businesses or debt being take on to acquire businesses. Their BEE credentials are good which should put them in good stead in doing business with government parastals and companies seeking to deal with highly rated BEE companies.
Based on RLF current financials we value them at between R7.19 and R7.25. We therefore feel RLF offers great value for investors looking to take a punt on a smaller capped share active in the chemicals arena. Investors should heed the warnings with regards to this company as mentioned above before deciding to buy. For the risk takers and thrill seekers this company might not be a bad bet all in the long run.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
Based on RLF current financials we value them at between R7.19 and R7.25. We therefore feel RLF offers great value for investors looking to take a punt on a smaller capped share active in the chemicals arena. Investors should heed the warnings with regards to this company as mentioned above before deciding to buy. For the risk takers and thrill seekers this company might not be a bad bet all in the long run.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.