Deep dive: Argent Industrial

This is the current portfolio. The most recent change is that I have sold Century Pacific. It's a very good company, but it somewhat lacks potential. Instead, I have once again increased my holding in Argent, PMV and RFM. I simply think these three stocks have greater potential (more value/deep value), even though I still like Century Pacific and will follow it. 

Looking at the portfolio, one company stands out in particular (yes, that's Argent). Therefore, it's time for a deep dive. First, here are some basic facts:

• Name: Argent Industrial
• Ticker: ART:JSE
• Stock exchange: JSE, Johannesburg
• Traded via: Pareto, Avanza and SEB (all Nordic/Swedish brokers). Old-time telephone orders. Also available via Saxo (Europe) and Fidelity (US). Note: Avoid the OTC listing, no liquidity! 
• Price: ZAR 33 
• Listed since 1999
  
  

Two simple takes

The simple take is that it is cheap, actually dirt cheap, and growing. To summarize: 

Argent is trading at P/E 6, EV/EBITDA 3, P/B 0,9, has +30% of its market cap in cash and a FCF-yield of 16%. 5-year CAGR is around 10% for revenue and 27% for EPS. It could double and still be cheap. That's why it is my largest holding!

Another simple take is that, despite being dirt cheap, it performs better than relevant peers! 

They trade 5-10x cheaper than its popular Swedish counterparts. But unlike them, has a large net cash pile and a more stable track record. The key is that they have expanded outside South Africa (mainly to UK) and that the foreign parts, with higher margins, now carry more weight and are growing faster. In Sweden you pay a popularity premium, but with Argent, you get a European/global company with higher quality, at a deep South African small-cap discount. As they grow and perform, the discount may partly disappear. Until then, you get dividends and buybacks.  

What does Argent do?

They are a serial acquirer*, or conglomerate, in manufacturing. Everything revolves around heavy products, steel and metal, etc. Basically, steel trading is their legacy business, but they are increasingly moving towards products with higher added value and better margins. To some extent, this involves products that are needed regardless of the economic cycle, such as safety products and many products are subject to regulatory requirements. Examples of what they do include: safety gates, fences, fireplaces, ladders, doors, fuel tanks, aircraft refueling machines and products for railway tracks. Heavy and boring - but often necessary!

Diversification is important, and because the company has more than 20 companies in different niches, some of the cyclicality disappears. In any case, it evens out. Even more important is that a large part of the revenue and profit comes from outside South Africa. Since 2016, they have been actively buying companies in Europe, especially in the UK, and some pandemic purchases were really smart. Today, South Africa accounts for about 30% of profits and the rest of the world for 70%. This is a change that has taken place gradually and is likely to continue. In recent years, they have made some typical acquisitions in the UK. You can read about the companies they own here. One exciting thing is that they are developing electric vehicles for refuelling aircraft. Overall, the fuel part of Argent has a clear connection to airports and defence, where there are likely to be reasonable barriers to entry.

* One could argue that they are not a serial acquirer, as there can be quite some time between each acquisition. They are more like a infrequent acquirer, or selective acquirer. Nothing wrong with that! Being a serial acquirer seems like a stressful life and comes with a compulsion to always buy. 

The numbers

Over the past 3–10 years, sales growth has typically been in the range of 3–10 percent, while profit growth has been in the range of 10–30 percent. The track record is good and stable. One thing to consider is that the business wasn't affected that much by the pandemic (it's not that cyclical after all?), and buybacks and diversification away from South Africa have also had an effect (for both margins and currency).

From Fiscal AI you have these set of numbers:

• P/E 6
• P/B 0.9
• EV/EBITDA <3 
• ROE 5 and 3 year: about 15 percent
• Revenue CAGR 10 year: 5 percent
• Revenue CAGR 5 year: 10 percent
• Revenue CAGR 3 year: 2,7 percent
• EPS CAGR 10 year: 31 percent
• EPS CAGR 5 year: 28 percent
• EPS CAGR 3 year: 13 percent
• FCF Yield +16% 
• Net cash: 31 percent of marketcap

For the latest 3 years, there is a slowdown, but I don't think recent report for September 2025 is included (no slowdown there).

Why cheap, what can be changed?

To start with: The history before 2017 is not actually that good. They made a strategic shift that is still underway, which is simply: More foreign income and higher-margin business. This marks a departure from the legacy steel business and the historically South African focus, rather than a global one. Regarding what can be changed, we have to remember that the big change already happened about 2017. After that, there has been continued change (that the market might have missed to grasp). There are many acquisition targets in, for example, the UK, and they are buying really small companies really cheap. To do this, 30% of market cap is in cash. So far, they are buying companies with low investment needs (they are selective), which generates strong cash flows. The key is simply that the successful expansion abroad continues. They have also started to grow in Europe (outside the UK) and in Canada. But they are taking cautious steps, which should be seen as positive.

Some South African funds have begun to discover the company; there are more now than a year ago, but still not many. And hardly any foreign funds own the company. However, some foreign niche investors have found their way there, we can call them "pioneers", and I am thinking of a Texas-based American value investor who bought 5% of the company a few years ago. And for some time now, a British value fund has been the largest owner, with 30% of the company. But the company is largely unknown among the broad investor community.

With more acquisitions, a longer history and higher margins, more people may become aware of the "new Argent", both funds and private investors. What is currently perceived as a South African low-margin company is and will become more of a global high-margin company. When the market perceives this change, valuation may change. In the future, they may also be listed on another stock exchange, e.g. AIM/London. Although it is not certain that this would increase the valuation, it would make them more accessible to a broader investor base. More global trading, if, for example, IBKR were to allow trading in South Africa, would also change interest in the company. But the big thing is that sooner or later, the company may become interesting to international funds once it has grown to a slightly larger size. With continued growth, this could happen.

Outlook
In their latest report they gave this outlook, that sounds quite promising (let's hope for some good acquisitions in the future!):

"Our international order book remains strong. Domestic operations are robust with potential for further recovery. Attractive opportunities exist to allocate capital to strategic acquisitions further enhancing the group’s footprint. Argent Industrial is therefore well-positioned to deliver satisfactory results in FY2026 and into the long-term"

Risks

Here are some risks:

• Currency. With most of its revenue in GBP and listed in ZAR, a stronger ZAR hits the company.
• Small market cap. No well-known funds in the company. But some good local funds own it, which is important!
• The South African part has political risk. High dependence on developments in the UK (and to a lesser extent South Africa).
• Cyclical elements. But much less than one might think.
• Low liquidity in the share.
• Acquisitions always carry risks, even when purchased cheap. Some parts of the business may be affected by changing trends. I don't agree, but some people may think there is an obsolescence risk. 
• Not owning enough of them (no, just kidding!). But for my part, confirmation bias is a real risk! If you own a company for a while and like them, and they perform well, you might be biased.
  
  

Target price?

Hard to say. But if they trade at 100 rand instead of today's 32 rand, it's still cheap. And a Swedish "serial acquirer multiple" would be a lot higher than that. A thought experiment: If they used their cash reserves and new cash flows to buy three or four companies over the next two years, this would generate good profit growth at fairly low risk. The money is already there. Another slightly more provocative example: they could perhaps distribute 10-15% in yield (of today's profits) if they really maximized the dividend, and to this could be added 25% in an extra dividend from their cash pile if they choose to not buy anything. They could also add a "Swedish serial acquirer debt" despite this, and use that for a large extra dividend or to buy companies. But I really like that they are NOT taking financial risks, and buying companies from their own cash-pile is both underrated and unusual. If you listen: continue exactly as you do! I think many serial acquirers are all too familiar, and comfortable, with (high) debt!  

You can for fun compare Argent with, for example, Teqnion and Volati, and then you'll see that Argent (in my eyes) wins such a comparison by a mile. Better history, better figures, higher stability, at an extremely low valuation and net cash instead of medium-high multiples and a fairly high level of debt. Management think differently about risk, debt, acquisitions and cyclicality. And if a dividend investor were to assess these three companies based on both dividend, but preferably "dividend capacity" (my example above), they would, if they were rational choose Argent.  

But the best thing about the case is (hopefully) low downside, as 30% of the market cap is in cash and the P/E ratio is very low. You very rarely find companies with the same fine track record and low valuation. I would say that they stand out on a global scale: a company of high quality that could double and still be cheap – that's why Argent is my largest holding! I have looked at thousands of companies in the latest years (not deep, but still) and I think this is as much of a hidden gem as it gets. But who knows! This is just my opinion. Any opinion on Argent? 

Further reading

• Excellent Excel summary by Nesjamag (great to understand margins) 
• Analyst reports (a lot to dig into)
• Substack by Prayavalue (great overview)
• Bonhoeffer capital, this video from min 34 and this case study, page 11.
• Desert Lion Capital. Very good writeups about Argent, and they have owned it a long time. Please note that they also own Karooooo!