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Taking Stock– BarbicanAsset Management

Corporates show confidence in TPH

TRACTIVE Power Holdings (TPH) Ltd came into existence following the demerger of the Astra Ltd group in 2001. The year ended August 31 has seen another set of resu

lts being released by the company.


TPH Ltd comprises of Barzem Enterprises (Pvt) Ltd, Farmec, Puzey & Payne and Expeditors Zimbabwe.


TPH Ltd holds a 65% ownership in Barzem Enterprises (Pvt) Ltd.

The company has a dealer representative agreement with Barloworld Tractor International (BTI) to sell Caterpillar and Hyster.


BTI represent Caterpillar, the manufacture of heavy earthmoving machines and Hyster, a manufacturer of lift-truck products both based in the USA.

Farmec, a business unit of TPH Ltd, is involved in the sale of agriculture equipment.


It has a franchise for Massey Ferguson tractors, generator sets, Perkins engines, Monosem planters and implement brands for Kongskilde, Vicon, How-ard, Drotsky, GC Tillage and Ferri.


The other business unit, Puzey & Payne, operates as a dealer for Peugoet, Mazda and Mitsubishi vehicles. It also has a franchise for VW and Audi.

Expeditors Zimbabwe, another business unit, provides a customs-clearing and forwarding service to TPH Ltd, Astra Industries Ltd and others.


It is linked to Expeditors International, aworldwide market lead-er in cross-border movement logistics.


Shareholding

structure


TPH has 133 039 136 shares in circulation and of these, 86% are in the hands of corporate investors.


This reflects the confidence which the corporate has in the firm, and at the same time it implies the counter is generally speaking more stable.


The major four shareholders are as listed in the table below.


Financial performance


TPH Ltd has strived through the current economic hardships.

It posted a historical turnover of $21 billion reflecting a 196-percentage increase from that of last year.


The directors have attributed this slight increase against inflation to the deferred capital investment and machinery repairs within the group’s key market sectors.


However, the group’s profit after tax increased by 505% to $5,8 billion. Earnings per share also increased from $5,82 as of the previous year to $35,22. This compares well with the current official inflation rate of 455,6%.


On the other hand, the group’s gross and net profit margins have increased marginally by 17% and 14% respectively.


The gearing ratio also recorded a 2% increase while the return on equity registered a 39% increase. This goes well with the directors’ statement on the attribute of a low turnover increase.


Of concern is the movement in the asset turnover ratio, which has declined from 1,92 to 1,60.


This implies a decline in efficiency from the operations of the firm’s assets.


Strengths


Revival of the mining sector: The government’s move to revive the mining sector is a welcome move for Barzem Enterprises. It implies more demand for its products like earthmovers.


Supported staff training programmes: TPH Ltd’s units have been receiving some complementary staff training from the franchise principals.


State-of-the-art service equipment: To be better than its competitors, Puzey & Payne has continued to invest in the state-of-the-art technology in their service equipment. This includes the diagnostic computerised equipment for Peugeot, VW and Mazda.


Agrarian reform: Since the government has embarked on the agrarian reform, more is expected in terms of acquisition of new equipment for the newly-resettled farmers.


Challenges


Shortage of foreign currency: Like any other organisation that imports either its products or inputs, the persistent shortage of foreign currency has adversely-affected the volume of trade for TPH Ltd as a whole.


Inflation: This has affected both the firm and its clients. Disposable income has been adversely-affected, interest rates have exorbitantly increased and these impact negatively on the business of TPH Ltd.


Depressed capital investments: This is in relation to the mining, construction, and processing industry. Accordingly, Barzem’s future success is dependant upon the country’s ability to support the mining industry, and to undertake the necessary construction and repairs of national infrastructure.


Increases in duty: The government has announced significant increases in duty for what are termed luxurious goods. Cars, the major business of Puzey & Payne, are among the so-called luxurious goods.

Valuation


TPH Ltd is currently trading at a historic P/E ratio of 3,69.

Based on our forecasts of the earnings the counter is trading at a forward P/E ratio of 0.73x.


This goes on to give support to the opinion that the share is trading at a discount.


Conclusion


From the above valuation we view the counter as being somewhat undervalued and thus expect it to strengthen.


A buy is therefore, recommended since we view the market to be at its lowest levels with no major falls being expected.


Soon after the announcement of the budget statement the market will be expected to be a buyers’ market as most investment managers have plans to take position then.

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