Rolfes (RLF) is a chemicals business with a Market Capitalisation of R650m. Today they released a voluntary trading statement and operational update. Typically, a company would only do this, if management has excellent news to share with the market, and it is therefore no surprise to see the Share Price up 10% on the day.
Fundamentals and long term trends
They have recently restructured their business into four divisions: Agriculture, Food, Industrial and Water. The Industrial division aside, these divisions reflect trends that are growing strongly and have excellent long term fundamentals in South Africa and Africa overall. Excess to clean water, optimising agricultural efficiency and feeding the population will remain major African areas of focus in the decades to come. The chemicals that Rolfes produces will therefore be sold into these growing sectors, which in turn need to consume increasing amounts of chemicals, as they are trying to increase efficiency and productivity from increasingly scarce resources.
The growth in the demand for Rolfes’ chemicals is reflected in their excellent growth in earnings, which are at the heart of this trading statement. They anticipate half-yearly EPS to be at least 25% higher than the prior period. This is on the back of a 39% increase in EPS for the previous full year.
This strong earnings growth, however, comes with an undemanding valuation. Doubling the forecast 35c EPS for the full year, put Rolfes on an incredibly cheap Forward PE of 6.3. If we compare to this to the larger competitors in the chemicals sector, Omnia with a Forward PE of 16 and Afrox with 12, it becomes clear just how cheap this little business is at the moment.
Despite this rally in the share price, Rolfes trades at a moderate premium of only 1.3 to its NAV, while its larger competitors both trade at around 1.7.
Rolfes is a phenomenal business with excellent long term fundamentals, that is looking extremely cheap at current levels.