Austro (ASO)

Previous Stock Tip These companies are all previous recommendations from the Red Hot Portfolio that we subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations we’re making now, simply click through to start your no obligation trial! Initial Recommendation: RHPS Issue 71 / April 2007 With 20% of the market share already in its vices, there’s no stopping this dominant competitor This welcome new addition to the JSE was established way back in 1980, so is no baby at all. The company’s a distributor of premium quality woodworking equipment, selling and maintaining tools, blades, cutters and related products. The group already has more than 20% of the South African market share, but intends becoming the market dominant player. Austro Group Limited has long standing distribution and business relationships with leading European equipment manufacturers, and also has its own manufacturing branches in KZN and the Western Cape. The company calls their products “best of breed” and describes their service to the market as “unparalleled”. Yes I know they would say such a thing about their own operations, but as I went through all of this and what their peers and critics had to say about them… I have to agree! Some of the products under the umbrella include: Framing, band saws, circular saws, routing tools, lathes, panel saws, sanders, dust extraction tools, planers, boring tools, shaping tools, veneering, edging tools, moulders and rip saws. The company also services their products, offers training and utilises a large fleet of delivery vehicles. The market loved what it saw I’m always keen to observe the market’s response to new listings and what we had here was impressive to say the least. The share began its life on the JSE with an 80% premium to the listing or placement price and hasn’t looked back since. At listing, the PE would have been about 20 times and is now even more. I know this is a bit rich, but I’ve learnt not to tell the market what’s too high or not. Many times a high PE is justified when you take the future prospects into consideration. These product lines place the company right in the middle of one of the expected general government-backed infrastructure capital expenditure roll-outs over the next few years. Austro will have an ever increasing demand for its products, well at least for the next few years! Prime woodworking machinery is always a constituent of expansion in building and construction, with the finer machine tools being used in the finishing processes. While the larger saws are used in almost every creation of roof trusses, support structures and the like in commercial, industrial and private home construction. Builders and carpenters as well as the private hobbyist will always require these products. With a 20% increase in revenue every year bar one, the fundamentals are glowing In terms of the future, the company’s expecting an improvement in profits as they expand their tooling capacity and look toward expansion in other areas as well. Austro has for the past eight years grown its revenues by more than 20% each year except for one… quite a track record! In terms of track record, the CEO is the brother of the CEO of Busby, which we had in our portfolio before and has done phenomenally well. Projects related to the 2010 Soccer World Cup will see their way through to the bottom line of Austro as well. Turnover of R220 million this year alone is expected to grow exponentially as the organic growth gathers momentum. I’d be careful chasing this share price out of my suggested buy range. If it does go way too high after selection, it would be more appropriate to buy into a pull back or any future weakness. Don’t be in a hurry! Another strategy is to stagger your buying, rather than trying to get your order filled in one go.

RHPS Verdict I think what’s more important than what I can say is what the market thinks of this company. It’s not wasting any time in marking the share skywards. The historic PE (at listing) is high, but justified in light of the future prospects. This company is very well managed which always translates into the share price. I vote this share buy from current levels of around 284c to a target of 490c in a year. UPDATE 1: RHPS Issue 74 / July 2007 RHPS Recommendation: HOLD Austro: Slowing at the top The share has run up strongly, but has now flattened out near the record highs. UPDATE 2: RHPS Issue 75 / August 2007 RHPS Recommendation: HOLD Austro: Not wasting any time This hot company isn’t wasting any time getting things going since its recent listing! The company just announced the acquisition of three companies. These are Generator and Plant Hire, Neptune Plant Ltd and Gearing Moss Supplies. The share price is just about on its highs. UPDATE 3: RHPS Issue 79 / December 2007 RHPS Recommendation: BUY Austro: Released great results The share’s in a new slight upward trend after the decline from its highs. The company recently released great results. The new acquisitions have been bedding down well and will improve earnings to come. UPDATE 4: RHPS Issue 80 / January 2008 RHPS Recommendation: HOLD Austro (ASO): Up it goes The share continues to edge upwards in a new trend of a few months. UPDATE 5: RHPS Issue 85 / June 2008 RHPS Recommendation: SELL Austro (ASO): Let’s cut our losses now The share continues to fall despite the spectacular earning report just released. However, sentiment is negative and our time period is up, so sell now. Let’s minimise our losses on this one.

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