Reunert is rocking
Reunert is one of the best-performing technology shares on the Johannesburg Stock Exchange (JSE), with a price return of around 30% in 2024.
Reunert has a long and rich history in South Africa. It was established in 1888 by Theodore Reunert and Otto Lenz.
It quickly became South Africa’s leading specialist in the new fields of electric lighting and power transmission. It also imported and installed engineering equipment.
Reunert and Lenz received global acclaim by constructing a replacement steam-generated power plant for Johannesburg in six weeks.
In 1948, the company was listed on the JSE. It continued to evolve and expand its operations through organic growth and acquisitions.
Today, Reunert is an industrial group with a portfolio of businesses in its electrical engineering, ICT and applied electronics segments.
- Electrical engineering — It offers electrical cables and circuit breakers.
- ICT — It offers business communications, workspace services, rental-based finance, and systems integration.
- Applied electronics — It offers secure communications, fuses, radars, logistics, and renewable energy.
It has been a strong performer and has withstood many of South Africa’s economic challenges.
It benefitted from its exposure to renewable energy, which has shown strong growth over the last few years due to Eskom’s problems.
The company is highly diversified. It generates revenue in South Africa, the rest of Africa, and from developed markets.
Reunert’s three areas for growth are:
- Expanding its ICT segment into digital integration solutions.
- Investing in the renewable energy ecosystem and ownership of renewable solar assets.
- Increase international revenue supported by a permanent presence in geographies of strategic value.
The company is confident this strategy will deliver future growth, higher rates of return, and maximised shareholder value creation.
Investors have shown confidence in the company, which has resulted in its share price rising by 30% year-to-date in 2024.
Revenue and net income
Reunert has delivered strong revenue growth since 2020, exceeding its pre-Covid levels.
Since H2 2021, the group has increased its annual revenue at an average growth rate of 19%, measured at half-yearly intervals.
Reunert’s profitability has also been on the path of recovery, and it is currently close to generating the same profit levels as it did before Covid.
Unfortunately, despite the strong revenue growth, the group has not been able to achieve the same level of profitability it did in the years leading up to 2020.
From 2016 to 2019, Reunert achieved an average net profit margin of around 11%. From 2021 to H1 2024, the group achieved an average net profit margin of 7.4%
This has led to the group generating less profits despite the increase in revenue over the last four years.
Electrical Engineering
The electrical engineering segment manufactures and supplies underground and overhead cable products and low-voltage electrical equipment.
The segment has two clusters — power cables and circuit breakers.
The power cables cluster designs and manufactures a variety of electrical cables for low to high–voltage needs. It also provides and manages ready-to-use installations.
This cluster experienced strong growth in South Africa, fuelled by significant demand in the renewable energy sector.
The circuit breaker cluster manufactures low-voltage circuit breakers for electrical distribution, protection, and control equipment.
The circuit breaker cluster makes around 60% of its sales in the local market, with the remainder sold overseas.
The electrical engineering segment is Reunert’s largest segment and contributes 52% of the group’s revenue.
The segment experienced a significant pullback in revenue during 2020 as lockdown restrictions were imposed.
However, revenue has seen a strong rebound and growth since then, with 13% growth in 2022 and 14.3% in 2023.
Operating profit from the segment experienced a similar trend, recovering strongly after 2020, reaching R552 million in its last annual results.
ICT
The ICT segment offers various products and services, from affordable voice and data solutions to wireless connectivity to office automation.
The segment has four clusters: business communication, total workspace provider, rental-based finance, and solutions and systems integration.
Business communication includes ECN, a business providing affordable voice and data, as well as SkyWire, a wireless network provider.
Total Workspace provides office automation and ICT solutions to SMEs through its ownership in Nashua.
Rental-based finance provides rental-based financing to Reunert’s ICT business units.
Solutions and systems integration include OneX, a digital integration solutions provider, and a recent 74.2% acquisition of IQbusiness, a technology and management consultant company.
In the last financial year, the segment’s revenue increased 18% from R2.6 billion to R3.1 billion, accounting for 22% of the group’s revenue.
From 2019 to 2021, the segment experienced declining revenue levels. However, it has grown ever since.
The segment experienced muted operational profitability as load-shedding and higher interest rates affected the SME market and increased operating costs.
Operating profits have, therefore, not yet been able to reach pre-Covid levels but experienced a slight increase in the most recent financial year.
Applied Electronics
The applied electronics segment broadly operates under two main clusters: defence and renewable energy.
It develops secure communication systems, cryptographic cybersecurity products, and radar technology.
It also manufactures military-grade electronics and fuses, provides engineering services for ICT and defence, and offers turnkey energy solutions, including solar and energy storage.
The segment has seen strong growth in the past two financial years, fuelled by growing demand for renewable energy solutions within South Africa and the acquisition of Etion Create.
Reunert acquired 100% of the share capital of Etion Create in October 2022 for R202 million.
The company specialises in defence products, including tactical navigation, rugged smart displays and advanced signalling processing platforms.
The company also develops secure communication systems and test equipment.
In the past financial year, the segment increased its revenue by 51% from R2.4 billion to R3.6 billion.
The strong renewable energy performance and Etion Create acquisition also contributed positively to the segment’s operating profitability.
Operating profits saw strong growth since 2021, and in the latest financial year, operating profits grew by 163% to R432 million.
Dividends
Reunert has been a stable dividend payer. Until 2020, the group had strong increasing dividend payouts.
However, dividend payouts were significantly cut after the Covid lockdowns, when the group suffered severe profitability shocks.
Reunert never missed a year of paying dividends. Since 2020, It has increased its dividend yearly but maintained a more conservative payout.
From 2015 to 2018, Reunert paid very attractive dividends and maintained an average dividend payout ratio of 0.72.
This means that during that period, Reunert paid 72% of its net income to shareholders in the form of dividends.
After 2020, Reunert has maintained a more conservative dividend payout ratio between 0.5 and 0.65.
Reunert’s dividends history paints a picture of sustainable dividend payouts growing in line with the group’s profitability and ability to pay dividends.
The biggest reason for the lower dividend payments is a more conservative dividend policy rather than decreasing profitability.
Loading ...