Mustek, a leading assembler and distributor of personal computers and ICT products in South Africa, has experienced a remarkable two weeks on the Johannesburg Stock Exchange (JSE). Between July 16 and July 29, the company’s share price soared by 50%, reflecting a resurgence of investor interest.
This impressive rebound follows a difficult start to the year, during which Mustek’s share price plummeted by over 30% between January and May 2024. The company had previously seen robust growth during the lockdown, with its share price rising from R5.73 in July 2020 to R17.34 in August 2022.
However, recent financial results painted a less optimistic picture. Mustek reported a 13% decline in revenue and a 59% drop in basic earnings per share, causing the share price to fall to R8.25 per share—the lowest it had traded since the pandemic.
Despite these challenges, analysts saw the share price decline as a buying opportunity. Alex Duys, chief investment officer at Umthombo Wealth, pointed out that Mustek’s share price was at its second-lowest since 2008. He attributed the poor results to an overstock of renewable products, which are still in demand but are now being sold at reduced profit margins of 12% to 14%, compared to over 20% previously.
Duys emphasized the importance of reducing Mustek’s working capital, which has accumulated over the past few years. The company’s management has committed to addressing this issue, promising that a reduction in working capital would release significant cash, lower debt, and interest payments, ultimately boosting earnings within a year or two.
“The next set of results will not be pretty, but they will provide a new low base to build on,” Duys noted. He suggested that Mustek’s attractiveness would increase significantly if the company could successfully reduce working capital and debt. He also mentioned the potential for Mustek to de-gear its balance sheet and conduct share buybacks at the current low levels, which could further rally the share price.
Group financial director Shabana Aboo Baker Ebrahim told MyBroadband that Mustek has been working to strengthen its balance sheet by reducing working capital and debt. Although progress has been made, the current economic climate and a slowdown in the sustainable energy market have impacted these efforts.
The recent surge in Mustek’s share price, from R8.25 in May 2024 to R13.68 on July 29, represents a 66% increase, effectively erasing the losses incurred earlier in the year. This rise comes amid significant activity from large asset managers, including Standard Bank and Old Mutual. Last week, Mustek announced that Standard Bank had sold most of its shares, now holding only 0.02% of the company. Old Mutual also reduced its stake to 4.65%. Conversely, Peresec has been increasing its holdings, recently boosting its stake to 23.09%.
Investors who heeded Duys’ advice three months ago have seen substantial returns, underscoring Mustek’s potential for long-term growth despite recent financial challenges.
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