NEW FRONTIER PROP
When a property company sets out its stall as “New Frontier”, you could be forgiven for expecting that it had something pretty fruity up its corporate sleeve. Development opportunities up by the headwaters of the Amazon, coastal vistas in Tierra del Fuego — there is no shortage of opportunities for the adventurous investor, so it is perhaps a little surprising that the new frontier this operation is pursuing is based firmly in the north of England. The company has three shopping centres in Burton upon Trent, Middlesbrough and Blackpool, and while these locations may not immediately leap to mind when you are considering the hotspots of global retail, they are performing solidly.
What makes this interesting as an investment opportunity, however, is the extraordinary upheaval caused by the somewhat inexplicable decision to vote for Brexit, and the rapid defenestration of government that has accompanied it. The market uncertainty brought on by the decision has led to sterling tumbling, reversing the seemingly endless decline of the rand, which now goes considerably further than it did a month ago. New Frontier has reacted to the changing circumstances with caution.
The fundamentals of the UK’s economy remain sound, however. Though the uncertainty has brought a large helping of jitters to the property market, there are bound to be relative bargains available while the country renegotiates its trading relationships. This is clearly not an environment for the faint-hearted, but there will be all manner of opportunities popping up for anybody who’s brave enough to grab them.
Vital numbers on July 18 2016
|Share price (R)||26.00|
|Market cap (Rbn)||3.97|
|Earnings yield (%)||0.01|
|Dividend yield (%)||4.54|
The solid progress in implementing its turnaround strategy that the Distribution & Warehousing Network reported at its interims proved, unfortunately, to be something of a false dawn.
The second half threw great battalions of challenges at the group, which slumped to a net loss after tax, impairments and write-downs of an eye-watering R757.9m. The main problem was caused by a sharp economic contraction, which was worsened by a slowdown of government spending on water projects, and this put major pressure on group sales. Management responded by slashing prices, which cut margins to the bone.
While the group did what it could to trim operating expenses, its high fixed cost base meant that it was unable to avoid plunging into the red. Matters were not improved by problems at Grohe Dawn WaterTech, where delayed approval of working capital funding messed up its supply chain, cutting earnings in the company itself as well as in Dawn’s building trading segment. Dawn’s African businesses were also hit by foreign exchange issues, lower resource prices and political instability. There’s no immediate prospect of a return to profitability, with economic conditions expected to remain challenging in the region, but the company has strengthened its management team and is doing what it can to stem the losses. It is exploring ways to cut costs, but a meaningful improvement is expected only in the medium term. For the moment, there’s not much for shareholders to do except hang tough and hope that, eventually, economic conditions will become more benign.
Vital numbers on July 18 2016
|Share price (c)||298|
|Market cap (Rm)||721.88|
|Earnings yield (%)||-21.99|
|Dividend yield (%)||—|