Veteran market watchers can't recall when last this almost 70-year-old company failed to make a payout to shareholders. Conservative management policies accumulated cash balances that sometimes equated to more than half of the annual gross profits.
The cash holding peaked at almost R162m in 2012, but now stands at a less comforting R56m at the end of June 2014. The skipped dividend payout surely means Rextru directors are not certain the company will swing strongly back into profits in financial 2015.
It's not a well researched company, but Independent Fundamental Research (IFR) recommends investors avoid the share for now. IFR's view, however, might ignore Rextru's history of bouncing out of operational slumps - and for being out of synch with the mainstream fashion retailers.
Trading conditions for fashion retailers are hardly glittering, but results from listed peers such as Mr Price and Pepkor as well as credit retailers Foschini and Truworths suggest it's still possible to achieve smart margins.
Yet the performance from Rextru's Queenspark seemed disconnected and dangerously drab. Revenue crept up 3.6% to R501m, while gross profit margins were squeezed down from over 50% to 48%.
The uncomfortable question is whether the Shub family, which has controlled Rextru since the mid-1940s, should not make way for a new strategic shareholder with fresh retail strategies.
Clearly there can't be accusations of huge value destruction - at least not yet. Rextru is managed way too conservatively for such a charge to stick. But the company's net asset value has drifted from R13.70/share at the end of June 2012 to R11.52/share at the end of June this year, and such dribbling away of shareholder value comes under intense focus when a family retains effective control of a company through artificial means.
Rextru, like the Ackerman family-controlled Pick n Pay, ensures control via a pyramid holding in African & Overseas Enterprises (A&O). Further securing the control structure is that the bulk of the issued shares are low-voting N shares.
Two of the biggest shareholders, economically speaking, are respected empowerment investment company Brimstone and the Ceejay Trust, which is aligned to well-known investor Hugh Roberts.
Brimstone and Ceejay combined - and including their respective holdings in A&O - hold bigger economic positions than the Shub family.
Brimstone, which has a rather enviable track record in adding value to its various investments over the years, has approached Rextru about unlocking value in the business.
Brimstone chairman Fred Robertson says there have been "various offers at various times" from outside parties for Brimstone's shareholding in Rextru and A&O in recent years. But Brimstone is determined to hang on. "We think there is value, and we are busy unpacking the property value in Rextru. Perhaps there is even an opportunity to sell the Queenspark chain to an international retail player?"
Brimstone, which owned the small Romens fashion chain in the late 1990s, has in the interim begun its own retail journey again, perhaps inadvertently mimicking Rextru's well-documented transformation from a manufacturer to a store owner.
In a bid to show its clothing manufacturing prowess in House of Monatic, Brimstone has opened three concept stores selling the hip CSquared menswear range in Johannesburg, Cape Town and Durban.
Robertson stresses the stores are really brand extensions rather than a full retail thrust. But he concedes there could be an opportunity to open 10-12 concept stores. "We are encouraged by trading, especially at our stores in Canal Walk in Cape Town."
Any success by Brimstone in its retail venture, albeit at concept store level, would make it increasingly illogical for Rextru to keep fobbing off the empowerment company's willingness to weigh in strategically.
This means Rextru's efforts in opening new stores and lifting margins can't falter. Encouragingly, Rextru CE Catherine Radowsky reports that initiatives to improve the gross margin were paying off in the first nine weeks of the new trading year. There is also a push into Africa, kicking off with a franchised foothold in Kenya.
Hopefully the African venture clicks, recalling that efforts to shift into Australia were not terribly rewarding some years back.
Source: Financial Mail via I-Net Bridge
