Trellidor, the 40 year old Durban based manufacturer of custom designed security barrier systems is, subject to market conditions, set to list on the main board of the JSE at the end of October 2015.
Making the announcement, Trellidor CEO Terry Dennison said the company has reached a phase of its development which provides the general public and its 89 franchisees and distributors the opportunity to invest in an iconic South African brand and the business’s high quality cash flows. Investors will also participate in the value created by the company’s low risk growth strategy augmented by the acquisition of complementary businesses.
A listing will not only enhance and strengthen Trellidor’s profile, but will also provide a platform to access capital markets to finance further growth, both organically and in particular through acquisition. As and when we find appropriate earnings enhancing opportunities, we will invite our shareholders to support us in funding them.
The offer will consist of approximately 53 million shares, representing 49% of the company’s shares in issue, with a placement of between R319 million and R372 million. The five senior executives have a combined experience of over 70 years with Trellidor and own 12% of the equity in the company.
A price range of 600 cents to 700 cents per share has been set, which equates to a market capitalisation of between R648 million and R756 million. Trellidor’s policy of distributing 50% of profit after tax translates into a premium dividend yield of between 3.5% and 4.1% based on the indicative price range.
Of particular note is that the projected organic growth is low risk as it builds on the recent expansion of the distribution network in both South Africa and Africa and the launch of new products, including internally developed products targeted at the lifestyle security barrier and gated estate market.
Dennison said: We are in the early stages of this growth initiative given sales of new products introduced since 2011 and geographic expansion into Africa represent less than 18% and 11% of turnover, respectively. Growth can be accelerated through acquisitions.
Trellidor should perform relatively well in an economic downturn and as a public company with access to capital, it is well positioned to pick up some interesting acquisitions. Further, as the business has significant spare manufacturing capacity, shareholder returns will be improved through operational gearing and manufacturing synergies.
Trellidor, with an estimated 35% market share in the country’s main centres and 50% in outlying areas, is the market leader in the custom made barrier security sector. Trellidor has 72 franchise outlets throughout South Africa. It is the only business in South Africa with a dedicated national distribution network that is capable of measuring and fitting custom built physical barrier security.
The company has 17 distributors in 17 African countries, with an assembly plant in Ghana providing services to the West African region.
Dennison said: We already have the know-how to do business in Africa and are currently targeting new distributorships in Nigeria, Angola, Uganda, DRC and northern Mozambique. We also intend to increase the number of distributors in Ghana and surrounding countries. African expansion is a key strategy and we will continue to deliver it in a measured way by sharing risk with locally established partners.
The company’s profit after tax has grown from R11.7 million in 2012 to R45.5 million in 2015, driven by overhead efficiency, net sales growth of approximately 10% per annum and an improvement in gross margin from 46.3% to 50.7%.
At the same time return on invested capital has grown from 20% to over 50% resulting in free cash flow generated from operations, net of capital investment requirements increasing from R20.8 million to R53.7 million.
In this respect, Dennison is confident that in the foreseeable future, more than 90% of Trellidor’s profits can be converted into cash for future expansion and operations and also underpins the company’s commitment to pay a premium dividend yield.
The growth of the physical barrier security market in South Africa is projected to be robust due to increasing crime, a growing middle class and power outages. The African market for security is also accelerating as a result of urbanisation and growing home and asset ownership.
Dennison commented that: Investing in security represents a non-discretionary spend and particularly in times of growing crime people tend to buy the best possible protection. Trellidor performs relatively well during these times.
Furthermore, the company does not operate in the mass produced DIY market and deals primarily with the end user, therefore the business’s performance has a low correlation with the general construction sector. As the company is focused on custom made security, import substitution poses a limited threat.
PSG Capital are acting as corporate advisors and sole book runner to the listing. The market roadshow is planned for the week starting on 12 October 2015. Wide audience presentations will be held in Johannesburg on Tuesday, 13 October and Cape Town on Thursday, 15 October.
Interested parties can contact Riaan van Heerden at PSG Capital on 021 887 9602 orÂ email@example.com.
We are very excited about the listing which paves the way for a high quality and valuable investment offering to the public and institutions, Dennison said.
Issued by MediaVision on behalf of Trellidor
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