[TOP STORY] Santova’s stellar performance and Renergen’s ‘much tougher’ year

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SIMON BROWN: I’m chatting now with Keith McLachlan of Integral Asset Management. Keith, Santova –  I confess up front, this is the stock I got wrong in the pandemic. I couldn’t see it doing a great time, so I took the money and ran. Over the last three years it is up almost 400%; so far this year to date almost some 50% up. It frankly has had a stellar pandemic. It sounds weird, but they really have managed to do incredibly well. I know you’ve been holding it – is this still something that you think can deliver returns in 2023?

KEITH McLACHLAN: Morning, Simon. Well, the short answer is ‘absolutely’. If you ignore last year or so and consider all things relative, you are looking at a company that over the last 10 years has been [through] a recession, a strong rand, a weak rand and all sorts of things. It has been steadily internationally expanding despite all the chaos, which includes a pandemic as well. Over the last 10 years it has grown its revenue 13.4% year on year. It has grown its headline earnings per share with a little bit of operating leverage at 20% year on year. With a track record like that, why is it trading on 4.9 times price earnings?

So, irrespective of what the share price has done is a sun……1:41 cost for people who are coming in new. For the rest of us who hold it that’s great. But it is irrelevant. It doesn’t change the investment proposition here. The investment proposition is this is a company with a stellar track record that is executing, and it [has been] executing superbly over a long period of time in an absolutely huge total addressable market, because global trade is just so big.

Santova can carry on growing. I remember I ran the calculations, and if Santova ever gets to 1% of global trade, it will be in the Top 40.

SIMON BROWN: [Chuckling] That would be an astounding story from a smaller company in The Point in Durban.

But I take your point around that growth, and it has been spectacular, what it has also done. When I first was digging around this company, probably about 10 years ago, it was [just in] South Africa, and now it really has globalised itself. Yes, South Africa’s important, but last time I checked, more than half of the business is now offshore.

KEITH McLACHLAN: Significantly more than half. In fact, we are looking at about 90% of the businesses offshore. You’re correct. Go back about 12, 15 years and Santova was largely a Durban-based domestic clearing and forwarding business. That’s all it was. What [CEO] Glen Gerber and his team have done is that they have shifted the business into really a non-asset-based supply chain manager, and they’ve opened up trade routes globally, first really into the UK, Europe and Africa, and [then] into Asia.

The most recent acquisition is really in the US; that is actually on a very low multiple. They’ve got a wonderful beachhead there because there’s a surprising amount of various entries to logistics in in the US from licences and the like. But from there the objective is to grow that into a significant segment.

So they’re slowly, steadily opening up the world, opening up trade routes. They’ve done so in the last 10, 12 years, and they’ll carry on doing so.

SIMON BROWN: And of course the key thing is they’re asset-light. They don’t have planes, boats, trucks, trains and all the rest. They have a really fancy piece of software.

Switching to perhaps the other side is Renergen which – if I zoom out a three-year chart – was pretty much tracking Santova, and then this year had a much tougher year. The expectation was for good LNG [liquefied natural gas] and helium flowing sort of around Q2. That took longer than expected. But the LNG is, as I understand, [now] up and running and leaving Virginia in the Free State.

KEITH McLACHLAN: Yes. Spare a thought for people trying to get massive complex projects off the ground and running during a pandemic with supply-chain chaos. So, on the one hand, yes, phase one of the Virginia gas project was late and delayed. On the other hand this was during a pandemic with supply-chain chaos. It is running. They’ve already announced OMG deliveries, and we’ve confirmed that, for example, Italtile Ceramic has been receiving LNG, so that has happened.

What we are expecting is the helium module, which was delayed. They have fixed [that] up and it should be running. Any day now they should put out an announcement where they’ve managed to produce helium, and it’s a very important moment. Irrespective of helium, they’ve gone from [being] a developer to a gas producer.

So LNG is being produced now. That’s a de-risking moment. The moment helium comes on stream, they will then be a helium producer. These are very, very important moments that line up and put phase two – which is multiples the size of phase one – in the cross-hairs. And this time next year we should have the major variables for phase two locked in, and a full year of producing LNG and helium, such that [for] Renergen the next 12 months is absolutely huge for it.

Assuming everything works, this is a stock that could easily double, [but] there’s always risk around here. If something goes wrong, I can [see] the shape reflecting that, but people could argue otherwise.

SIMON BROWN: I like your point. It has gone from explorer [to] developer, and it’s now actually producer, it is now the real McCoy. It is shipping LNG. Stuff can go wrong. In all places things can always go wrong.

We’ll leave it there. Keith McLachlan of Integral Asset Management, I appreciate [your] early morning this morning and during the year.

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