The Finance Ghost: No Turkish delight for Metair

The Metair share price has lost almost half its value in the past six months. It only gets worse over longer time periods, like a 77% drop over three years. The group has been dealt more bad luck than any business deserves, ranging from terrible flooding at a key South African customer to the impact of hyperinflation in Turkey.

What’s that story about it being darkest before the dawn? If ever there were a company that might experience that, it’s Metair. It is making substantial strategic changes to the group in the hope of seeing the sun come up.

The disastrous business in Turkey, Mutlu Group, is finally out of the system. Metair got just $1-million for it in the end, locking in a spectacularly bad R4-billion loss on sale. For context, Metair’s market cap is R1.3-billion. So, the furthest from a Turkish Delight then. But is there anything in Metair that could taste decent in years to come?

With underlying exposure to the automotive manufacturing sector in South Africa, the Turkish business wasn’t the only problem in the group; it was just the largest. Metair is beholden to the fortunes of companies such as Toyota Motors SA. Any production delays at these customers (like we saw in the latest financial year) will directly impact Metair and there’s nothing it can really do about it.

This is why Metair pulled the trigger on the AutoZone acquisition despite the group balance sheet having more debt than anyone should feel comfortable about. It is part of a strategic shift towards aftermarket automotive parts and services, which moves Metair away from being reliant on only two large customers. It sounds sensible on paper, although that sector is also not a walk in the park. After all, AutoZone was acquired out of business rescue.

With Heps from continuing operations down by between 0% and 20% for the year to December 2024, one has to hope that the bottom isn’t far away. The risk is the balance sheet, and Metair’s top priority is to restructure the group’s balance sheet.

There’s a real risk here of the banks getting the juiciest part of the economics for the next few years. If anything goes wrong again, there’s even risk of an equity capital raise at some point, although that doesn’t appear to be on the table right now.

There’s no sign of the share price momentum changing yet, so I’m sitting this one out for now.

The construction industry is just too hard