Five years ago the electronics & electrical (E&E) sector's big three - Reunert, Altech and Altron - were shouting out "value". They offered high returns on equity, with consistent earnings and dividend growth backed by robust cashflows. Investors who took heed have not looked back.
The big three have delivered superlative returns, reflected in the E&E index's 174% total capital appreciation in the five years to December 2004. By comparison, the industrial index (Indi) was up 35%. In 2004 the E&E sector retained its position as a leading performer with a total return of 61% compared with the average industrial share's 46%.
Reunert, now in its 57th year as a listed company, stands out as the leader of the pack. Its share price in the five years to December 2004 was up 358%, on the back of average EPS growth of 20,8%/year. With dividends and special distributions included, its total return was 579% over five years and 79% in 2004.
Altech ran second on share performance over five years, with a gain of 247% and a total return of 287%, including ordinary and special dividends. Altech's total return in 2004 was 54%. In terms of EPS growth, Altech had the edge over Reunert, producing 21,3%/year over five years.
Broadly diversified interests have played a big role in Reunert's and Altech's ability to sustain strong EPS growth. For instance, poor performance from Reunert's defence operations has been more than offset by strong showings from Panasonic consumer electronics and Nashua Mobile cellphone operations.
Similarly, though Altech's UEC TV decoder manufacturing division was hard hit by the rand's strength, other operations such as Autopage Cellular and vehicle-tracking operation Netstar more than compensated.
Altech stablemate Altron did not fare as well, producing a low 7%/year increase in EPS over five years. But despite this, Altron produced a five-year price rise of 150% and a total return of 179%. Altron rectified its reliance on telecoms and has undergone a restructuring.
Altron's modest historic growth is reflected in a 10,3 p:e, well below the Indi's 12,8 p:e. Its 3,5% dividend yield is above the Indi's 2,3%. But, surprisingly, despite having outpaced the Indi's 13,6%/year average EPS growth rate, Reunert on a 11,7 p:e and 4,7% yield and Altech on a 12,3 p:e and 3,7% yield, are also rated below average. These ratings appear to belie growth potential, especially given planned infrastructure spending of about R145bn by Transnet and Eskom over five years.
Eskom's projected R11,75bn expenditure on transmission and distribution capacity is of particular importance to Reunert and Altron cable manufacturing operations and Altron's 50%-owned subsidiary ABB Powertech Transformers.
Increased momentum in the electrical equipment sector was evident in Delta Electrical's 2004 results, with turnover of its electrical repairs operations up 18% to R762m and its operating profit 35% higher at R160m. But this did not entirely offset a slump in Delta's key electrolytic manganese dioxide (EMD) operations, where rand and Australian dollar strength and a loss of market share in the US drove turnover 30% down to R397m and operating profit into a R12m loss.
