One of the JSEs most undervalued shares, and the good news Zuma's state of the nation address brings for it

by , 22 September 2017
One of the JSEs most undervalued shares, and the good news Zuma's state of the nation address brings for it
Consolidated Infrastructure Limited (JSE:CIL) is one of those buy and hold for a decade shares.

The company had a mere R8.32 in net assets in 2011. Today they stand at R21.62 - nearly 200% growth.

CIL also grew revenues from R1.4 billion in 2011, to R4.5 billion in 2016. That's a whopping 221% revenue growth.

And it's profit growth has been just as remarkable as it rode the wave of expansion in the renewable energy sector.

Yet, today the company's shares are selling at a low PE of 9.08. That makes CIL's discount to the JSE's All-Share index a massive 60.76%.

But this discount is about to be erased.

You see, a single message in President Zuma's state of the nation address on 9 February 2017 signals great news for CIL.

Why in this case, Zuma said something at the SONA address that is positive for business in South Africa

 
Earlier in 2016 Eskom announced it would not buy electricity from further renewable energy developments.
 
Eskom also tried renegotiating power purchase agreements with existing power producers.
 
This brought construction of new renewable energy projects to a halt and CIL actually didn’t even report on its order book the renewable energy projects it has lined up for South Africa because of this uncertainty.
 
But in his state of the nation address Zuma said that: “Work is continuing to ensure energy security. Renewable energy forms an important part of our energy mix. Government is committed to the overall Independent Power Producers Programme.
 
Eskom will sign the outstanding power purchase agreements for renewable energy in line with the procured rounds.”
 
In short – government is still committed to renewable energy, and the latest procurement round will continue, no thanks to Eskom.
 
According to the South African Renewable Energy Council (SAREC), this means more than R57 billion investment will flow in the short-term and jobs will be created once outstanding power purchase agreements are signed.
 

More renewable energy means more profits for CIL

 
With CIL operating in the renewable energy space, this means there’ll be a lot of new work flowing in for the company.
 
In fact, when it reported results in November 2016 CIL grew its order book for its ‘Power’ businesses by 22% to R5 billion. But this excluded R2.3 billion worth of South African work that was on ice.
 
Now, thanks to Zuma’s speech, we know that the R2.3 billion worth of work will come through – and possibly more.
 
That’s thanks to the fact that CIL has gone global.
 
The company produced 53% of its power division’s revenues from OUTSIDE of SOUTH AFRICA.
 
A lot of that spend was in Africa. But some of it also came from the middle east, which is slotted to be the next big solar energy hotspot, as the Saudi’s try and reduce their reliance on oil…
 
These are all positives. And I haven’t even gone into CIL’s latest deal, purchasing the largest prepaid electricity company in Africa. That, on its own, is a massive profit opportunity.
 
This is certainly a share to keep your eyes on.
 
Here’s to unleashing real value
Francois Joubert

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