Business Day – Why Metair expects earnings to double

Automotive supplier Metair expects headline earnings per share to more than double in the six months to June compared with the first half of 2016.

This is mainly due to a better performance by its automotive components business.

But profit from the group’s energy storage division, which makes batteries for vehicles and other sectors, is expected to be marginally lower due to the effect of currency weakness on foreign-denominated earnings.

Metair said headline earnings per share were expected to be 105.6% to 114.8% higher than the 54c in the first half of 2016.

In the first half of 2016, the automotive components business experienced a costly vehicle model launch, which was fraught with technical issues.

But Metair said all its automotive components businesses were now operating efficiently, having eliminated variable manufacturing and volume ramp-up costs associated with the launch of a new light commercial vehicle by its major customer.

“The jump in earnings reflects the profit recovery in Metair’s automotive components division,” said Kagiso Asset Management associate portfolio manager Simon Anderssen.

“In the first half of last year, Metair’s largest customer began producing a new model. This caused production disruptions and additional costs for Metair, which significantly impacted profitability during that period.

“The performance for the last six months is just a correction of these challenges and is a better reflection of ongoing earnings from this division.” 

The automotive components business was expected to have achieved low double-digit turnover growth in the period as production volumes normalised following the ramp-up.

Profit before interest and tax margins was expected to come in at 9%-9.5% — higher than guidance of between 6% and 8%, mainly on a stronger rand. But it would revert to guidance parameters later in the year.

The stronger currency had provided short-term gains on imported components and materials, which were not anticipated to continue in the second half of the financial year.

Metair’s energy storage segment, which has operations in Turkey and Romania as well as SA, was expected to have increased the profit before interest and tax margin by 15%-20% on a local currency basis. 

Metair said the Turkish business had shown resilience despite a weaker lira, which had increased input costs.

However, consolidated group results for energy storage were hit by foreign currency translation effects, especially with the Turkish lira devaluing an average 31% against the rand from the same period in 2016. 

Metair MD Theo Loock was out of the country and was not able to respond to questions on Wednesday.

The company said that, overall, margins in the energy storage division were expected to show a slight improvement due to a better performance by the South African battery business, higher-margin export business from Turkey and Romania and a satisfactory domestic operating performance in Turkey.

“It appears that the automotive business, as well as currency gains on imported materials, were the main drivers of the positive results,” Momentum SP Reid Securities analyst Dexter Mahachi said on Wednesday. 

By Mark Allix