Expanding the 2022 EasyResearch watchlist

We love sharing news of companies with rising earnings amid uncertainties, and Vunani Limited is one such company. With profits surging as much as 257% for the 2022 financial year, Vunani made it onto the EasyResearch watchlist. Merchantec Capital has done a great piece on Vunani and so we're sharing the results of their research below with our thousands of users who either hold or are considering buying this share:

EasyZAR

Vunani Limited (VUN)

The Group’s financial year started while the world was still in a frenzy due to covid restrictions and facing the new ‘normal’ of uncertainty. During the year restrictions eased and the economic growth started to look promising in the face of continued monetary and fiscal stimulus before inflation hit. Accordingly, inflation almost doubled as energy costs skyrocketed causing the Reserve Bank to increase interest rates which saw the Rand coming under pressure. The increase in the interest rate as an attempt to curb rising inflation coupled with Eskom’s inability to supply electricity, caused the economic recovery to slow even further and dampen any hopes of a full economic recovery after the pandemic.

Vunani had its best year since 2019 in terms of profitability. NPAT from continued operations increased by 257%, while revenue rose 22.9% during the financial year. It marks the highest revenue for the Group since inception. The Group unbundled the private equity assets sector in the previous year to focus on growing its financial services segment. Management placed its focus on growing the synergies in various segments. Discontinued operations had no effect on revenue for the year.

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Valuation

• VUN trades on a price-to-book of below 1.48x, a big discount to its underlying value
  and generates sufficient EBITDA to cover its short-term debt obligations (interest cover
  of 17.5x).
  
• The Group’s balance sheet remains robust with little interest-bearing debt. In the
  current increasing cost of debt environment, the group has a strong base to continue
  a positive growth trajectory for the future.
  
• Our DCF valuation indicates that the share is currently Undervalued, while our P/E
  valuation indicates that the share is currently fairly valued.
  
• With reference to the DCF table, we have considered a discounted cash flow analysis
  with cash flows forecast to FY25. Utilising a terminal growth rate of 4.5% and a
  discount rate of 21.8% or the sensitivity table, a value of R3.67 is returned.
  
• With reference to the relative PE table, we have compared Vunani to other financial
  services companies in the industry and applied a 20% discount to the peer average.
  The implied forward PE of 8.02x places the share at a valuation of R2.78

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The research was compiled by Merchantec Capital, a research publication firm. The piece was published on 6 July 2022, covering the most recent full-year financial results for the period that ended on 25 May 2022.

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Sources – EasyResearch, Merchantec Capital

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