The ART of buyback

06 July 2023

Last week, Argent Industrial, a small-cap industrial business listed on the JSE, released their 2023 earnings report, disclosing headline earnings per share of R4.11. This takes the annual earnings of the business higher than the share price in 2016, when our client funds first bought a position in Argent at R4 a share. Since then, the company has faced a tough economic backdrop, including COVID lockdowns, load shedding, and volatile commodity prices, and yet the share price is up over fourfold, delivering over 27% per annum in total return to shareholders.

The chart below shows Argent’s share price, earnings per share, and book value per share over the past 7 years.


Source: Company Financial Statements

 

Several things contributed to this performance, including good operational execution, but we think that sensible capital allocation and an aggressive share buyback have been important parts of this story.

As the chart below shows, the company has been steadily buying back shares and has repurchased just under 40% of its shares in issue since 2016.

Source: Company Financial Statements

 

While many listed company management teams often pursue a larger and more liquid market cap to attract institutional ownership and index inclusion in an attempt to engineer a positive share price re-rating, Argent seems to have eschewed this strategy, instead focusing on shrinking their share count at a significant discount to NAV, to the great benefit of shareholders. What’s more, the company has generated very attractive total returns without much of a re-rating.

While the company has been rerated on a price-to-book basis, it still trades at a 35% discount to Tangible NAV, and its trailing PE ratio has actually derated since 2016.

Source: Company Financial Statements

 

We think Argent is an underappreciated example of the value that good capital allocation can deliver to shareholders, even against the headwinds of an average-quality business in a tough industry facing a challenging macro backdrop.

 


Our Market Snippets email aims to provide concise insight into our investment research process. Each week, we highlight one chart that showcases our research, motivates our current positioning, or simply presents something interesting we’ve discovered in global financial markets.

For more of our current market views, please visit our website.

 

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Mohamed Ismail
Head: Fixed Income
Fazila Manjoo
Portfolio Manager
Kasief Isaacs
Head: Private Markets
Fund Factsheet

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Sholto Dolamo

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MSc (Engineering)

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Fabian de Beer

Chief Risk Officer

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H.Dip.Ed

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Lizeka Matshekga

Non-Executive Director

B Com Hons (Finance)

Masters (Development Finance)

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Sipho Makhubela

Non-Executive Director

CA(SA)

MBA

Advanced Management Programme (Harvard)

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Maserame Mouyeme

Independent Non-executive Director

BSc

MBA

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Nyonga Fofang

Independent Non-Executive Director

BA (Political Science)

Executive MBA

Nyonga Fofang, Independent Non-Executive Director at Mergence, has 25+ years of capital markets experience, specialising in private equity, M&A, leveraged finance, and general management. He co-founded and leads Bambili Group Investment Pty Ltd, a pan-African investment holding company. Nyonga also serves as a director at SourceTrace LLC in Boston. He began as a closed-end fund Equity Analyst at PaineWebber Inc. and holds degrees from Harvard University and UC Louvain.

Sholto Dolamo

Managing Director, Mergence Investment Managers

BSc (Chemistry)

BTech (Ceramic Science) 

MSc (Engineering)

MBA (Administration)

Sholto joined Mergence in July 2022. He has more than 15 years’ experience in financial services with a focus on strategic leadership, product innovation, and research across all asset classes in Public and Private markets. He held various senior roles at the Public Investment Corporation including Acting Chief Investment Officer. Before entering the financial services sector, Sholto pursued a specialised career in resources and precious metals.

Semoli Mokhanoi

Director: SADC, Head: Business Development & Marketing

BCom (Accounting)

BCom Hons (Financial Planning)

MBA (Strategy)

CFP®

General Tax Professional (GTP-SA)

Semoli joined Mergence in 2017 as Regional Investments Strategist. He has 20 years’ experience, including as a fund accountant, investment consultant and business development executive. With a strong network of contacts throughout the Southern African Development Community (SADC), he is also a non-executive director on several company boards.

Brad Preston

Chief Investment Officer

BSc (Mathematics & Statistics)

MSc (Financial Mathematics)

Brad joined Mergence soon after its inception in 2006. As an investment analyst, portfolio manager and former Joint MD at Mergence, he has experience in derivatives, absolute return, and specialist equities, as well as leadership. In 2021 he was appointed as Chief Investment Officer.

Karen Wagner

HR Executive

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John Afordofe

Chief Financial Officer

BCom (Accounting)

PGDip (Accounting)

CA(SA)

John joined Mergence in November 2018 as General Manager: Operations. He was promoted to Chief Operating Officer in 2019. In September 2021 his role at Mergence was specialised into Chief Financial Officer as part of high-level changes to the Mergence executive leadership team to meet the company’s strong growth.

Peter Takaendesa

Head: Equities

BCom Hons (Economics)

MCom (Economics)

MCom (Finance & Econometrics)

Peter joined Mergence in 2014 as a Senior Equity Investment Analyst specialising in the TMT sector. He became a portfolio manager in 2016 and head of the listed equities team in 2019. Peter has over 15 years’ experience in the financial services industry, having worked for several global investment banks. He won ABSIP equity analyst of the year in 2011 and has worked as a university lecturer in economics.

Izak Van Niekerk

Portfolio Manager

BAcc Hons

CA(SA)

Izak brings over 15 years of financial services experience to his role as Portfolio Manager at Mergence. He co-managed portfolios from November 2019 to December 2022, having joined the team in 2011 as an equity research analyst and dealer. His current focus encompasses resources, beverages, luxury goods, and healthcare. His background extends to being an investment committee member in private markets and an audit manager at PwC prior to joining Mergence.

Salome Maruma

Senior Investment Analyst

BCom Hons (Financial Management)

In 2023, Salome re-joined Mergence as a Senior Investment Analyst, having worked in the company in a trainee capacity before. With a focus on the retail and industrial sectors, Salome brings valuable experience from previous roles at local asset managers and a global investment bank over an eight-year career in the financial services industry.

Malose Mamashela

Investment Analyst

BCom (Financial Analysis & Portfolio Management)

MSc (Chemical Engineering)

Malose joined Mergence in 2022 as an Investment Analyst. With 20 years of experience, she has a solid background in chemical engineering and financial analysis. Malose previously worked as a process engineer at Sasol, Project Services Group, and Chevron. She also served as a sell-side equity research analyst at Primaresearch. Additionally, she has lectured in her field at the CPUT and provided consultation to 4th-year Design Course students at UCT.

Radebe Sipamla

Senior Investment Analyst

BCom (Economics Science & Business Finance)

Radebe joined Mergence in March 2021 as Investment Analyst in the Public Markets equity team based in Johannesburg. He currently covers banks, insurance, and other financials. With five years of experience, Radebe has in-depth sector knowledge across SADC, most notably in the banking, precious metals, and telecom sectors. In 2017 he won the ABSIP award for Research Analyst of the Year.

Keagan Martin

Investment Analyst

BCom Hons (Finance/Investments), BCom (Economics and Finance) 

Keagan Martin joined Mergence in 2021 as a Client Relationship Manager, following his experience at Prudential Investment Managers. In 2023, he transitioned into an Investment Analyst role in the public markets’ investment team, where he now specialises in small to mid-cap industrials and food producers. 

Mohamed Ismail

Head: Fixed Income

BSc (Actuarial Science & Mathematical Statistics)

BSc Hons (Advanced Mathematics of Finance)

Exec Masters (Finance)

CFA® Charterholder

Mohamed joined Mergence in March 2021 as Head of Fixed Income: Multi-Asset Class. He has 14 years of experience. Mohamed is responsible for a stand-alone fixed-income product and integrating a fixed-income investment process into the overall multi-asset strategy. He is the primary portfolio manager for the Mergence Composite Bond Fund and lead investment manager for the Money Market and Multi-Asset Income portfolios.

Fazila Manjoo

Portfolio Manager

BSc (Actuarial Science)

PGDip (Management in Actuarial Science)

Fazila joined Mergence in September 2020 as a Portfolio Manager in the Multi-Asset team. She has over 19 years of experience in the financial services industry, and a passion for research, technology, and sustainability. At Mergence, she is responsible for developing quantitative and systematic strategies across global equity, balanced and absolute return funds.

Unathi Hewana

Investment Analyst

BCom Hons (Financial Analysis & Portfolio Management)

BSc Hons (Biotechnology)

Unathi joined the Mergence Public Markets Investment team in July 2020 as an Investment Analyst in the Multi-Asset team. She has ten years of asset management experience and is completing her BCom Master’s degree in Applied Finance at UCT. Her primary focus at Mergence is a top-down and bottom-up analysis of the South African property sector.

Thabiso Mgwambane

Investment Graduate

BSc Hons (Physics)

Thabiso Mgwambane joined the Mergence Public Markets Investment team in July 2023 as an Investment graduate. With a BSc Honors degree in Physics and currently pursuing a Master’s degree in Astrophysical Sciences, he brings advanced computational and mathematical programming skills, as well as proficiency in analytical and quantitative methodologies.

Morgan Mlambo

Head: Investment Risk & Analytics

BSc (Mathematics & Statistics)

BSc Hons (Mathematics of Finance)

Financial Risk Manager (FRM)

MBA

Morgan joined Mergence in 2018. He has over 15 years of experience in the financial services industry. At Mergence, he has oversight on the generation and monitoring of investment risk metrics for Mergence portfolios including performance metrics, market risk, etc. In addition, he also has oversight on the compliance function pertaining to the Public Markets portfolios.

Jeandre van Jaarsveldt

Investment Analyst: Investment Risk & Analytics

BCom (Economics, Risk, and Investment Management)

Jeandre joined Mergence in 2023 as an Investment Risk & Analytics analyst, bringing three years of industry experience. Notably, he honed his analytical skills and became the youngest team leader at Burgiss during his tenure as a Private Equity Data Analyst. His strength lies in working with databases and excelling at identifying errors and outliers through data manipulation.

Nicolai De Greef

Trader

BCom (Finance & Investment Management)

Nicolai joined Mergence 2019 as a Trader. He has 14 years of experience in financial services, both in London and Cape Town, including in equity dealing, client relationship management, hedge fund administration, and fund accounting. At Mergence, Nicolai is responsible for executing equity trades for the Public Markets team as well as managing broker relationships.

Kasief Isaacs

Head: Private Markets

BCom Hons

CA(SA)

Kasief joined Mergence in 2015. He has 17 years of experience in the financial services industry. As Senior Investment Principal he has a specific focus on energy, infrastructure, and impact within SA and SADC. He leads the Private Markets investment team which has built up a stellar performance record over the past decade. Kasief has prior extensive international and local experience in SA’s renewable energy market. He is an experienced conference speaker and media commentator.

Chito Siame

Investment Principal

BSc Hons

MCom (Financial Management)

ACCA

Chito joined Mergence in 2011 as Equity Analyst in the Public Markets team focused on FMCG, hospitality, financial services, and telecommunications before transitioning to the Private Markets investment team in 2015. As Investment Principal, Chito focuses on Private Market investment opportunities within SADC. He has led transactions in the aquaculture and microfinancing sectors and serves on the boards of several investee companies.

Mosa Molebatsi

Senior Investment Associate

BCom (Actuarial Science, Quantitative Finance)

BCom Hons (Finance)

MPhil (Development Finance)

CFA® Charterholder

Mosa joined Mergence in 2023 as a Senior Investment Associate in the Private Markets team. Previously, she worked at the International Finance Corporation, the Public Investment Corporation, and Momentum Metropolitan Holdings in various investment roles. She is also involved in lecturing and foundation trustee work.

Tshepiso Appie

Investment Associate

BBusSci Hons

Tshepiso is an Investment Associate at Mergence Investment Managers. He joined the Johannesburg team in 2018 after a 3-year tenure in the middle-markets private equity team of a listed, blue-chip asset manager. With a diverse range of expertise, Tshepiso has successfully facilitated deals across multiple sectors at Mergence, including affordable housing, medicinal cannabis, primary healthcare, agri-finance, specialised healthcare, waste management, secondary mining, student accommodation, financial inclusion, and fintech.

Rizaan Samuels

Investment Associate

BSc (Finance & Accounts)

PGDip (Accounting)

CA(SA)

Rizaan joined Mergence in 2022 as an Investment Associate. He is a trained investment professional with extensive post-qualification experience in investment banking, asset management, and renewable energy debt investment. He is responsible for the origination and execution of deals in the SADC region for Mergence’s Equity and Debt funds, with a focus on infrastructure finance, renewable energy, and other clean energy investment opportunities.

Hileni Nghinaunye

Portfolio Manager

BBusSc

PGDip (Investment & Portfolio Management)

Hileni joined Mergence Unlisted Investment Managers (Namibia) as a Portfolio Manager in 2017. She has 15 years of experience in financial services. At Mergence she has transacted on and overseen infrastructure and impact investments on behalf of Namibia’s largest retirement fund, including three renewable energy projects, and a bulk infrastructure/land servicing project.

Linkeng Debra Letsaba

Trainee Investment Analyst

BCom (Investment Management & Banking)

BCom Hons (Financial Economics & Investment Management)

Linkeng joined Mergence Investment Managers (Lesotho) in 2022 as a Trainee Investment Analyst as part of our bigger Private Markets investment team. Her role encompasses assisting with the origination of opportunities and guiding them through the investment process, to implementation. Linkeng has team leadership skills, having been an SRC exco member at university.

Ntsbeng Chabeli

Property Analyst

BA (Economics)

PGDip (Property Management & Development)

MCom (Finance & Investments)

Ntsebeng joined Mergence Investment Managers (Lesotho) as a Property Analyst in 2022. She has five years of experience, including time spent as a real estate specialist and data analyst. Her responsibilities at Mergence include analysing the economic drivers of the commercial property portfolio and assessing the financial opportunity for existing and potential property investments.

Nandipha Kenqa

Risk Manager

BCom (Financial Accounting)

PGDip (Accounting)

CA(SA)

Nandipha joined Mergence as a Risk Manager in the Private Markets investment team in June 2017. She has six years of experience working as an external and internal investment auditor. Nandipha’s responsibilities at Mergence include ensuring that governance, risk, and control frameworks are effective and that all investment activities, across all markets, sectors, and deals, are in accordance with applicable legislation, regulation, and client mandates.

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Masimo Magerman

Non-Executive Chairman, Mergence Group
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Sholto Dolamo

Managing Director, Mergence Investment Managers
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Fabian de Beer

Chief Risk Officer
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Lizeka Matshekga

Non-Executive Director
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Sipho Makhubela

Non-Executive Director
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Maserame Mouyeme

Independent Non-executive Director
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Nyonga Fofang

Independent Non-Executive Director
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Managing Director, Mergence Investment Managers
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Semoli Mokhanoi

Director: SADC, Head: Business Development & Marketing
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Chief Investment Officer
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Karen Wagner

HR Executive
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John Afordofe

Chief Financial Officer
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Peter Takaendesa

Head: Equities
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Izak Van Niekerk

Portfolio Manager
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Salome Maruma

Senior Investment Analyst
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Malose Mamashela

Investment Analyst
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Senior Investment Analyst
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Investment Analyst
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Head: Fixed Income
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Fazila Manjoo

Portfolio Manager
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Unathi Hewana

Investment Analyst
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Thabiso Mgwambane

Investment Graduate
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Head: Investment Risk & Analytics
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Jeandre van Jaarsveldt

Investment Analyst: Investment Risk & Analytics
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Nicolai De Greef

Trader
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Kasief Isaacs

Head: Private Markets
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Chito Siame

Investment Principal
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Mosa Molebatsi

Senior Investment Associate
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Tshepiso Appie

Investment Associate
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Rizaan Samuels

Investment Associate
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Hileni Nghinaunye

Portfolio Manager
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Linkeng Debra Letsaba

Trainee Investment Analyst
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Ntsbeng Chabeli

Property Analyst
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Nandipha Kenqa

Risk Manager