JSE microcap stock Trellidor – which holds a market value of just R118m — might rightly be regarded as better suited to being a cog in a larger industrial business rather than a standalone listing on the JSE.
Speculation has mounted in recent years that the safety barrier specialist, following a series of uneven profit performances, might be a prime candidate for delisting — either via a takeover (and Argent Industrial, which owns the rival Xpanda business, was once openly touted) or a management buyout with support of larger shareholders.
Quite honestly, performance-wise, there’s not much that would have sparked any sudden investor interest in Trellidor … even from die-hard small-cap punters.
A recently released trading update for the year-end of June 30 show the company again forecasting a full-year loss — though there is a small glimmer of hope for shareholders that the current-year loss will be markedly lower than the prior year’s.
Essentially, in the 2026 financial year, Trellidor undertook a root-and-branch restructuring of the entire business, and cost savings from this programme came in at R16.8m. This, encouragingly, is better than the previous target of R13.9m, after additional changes at senior management level. The fully annualised effect of this cost-out programme, however, will be fully reflected only in the financial 2027 results.
But will Trellidor still be listed come 2027?
Speaking to CEO Damian Judge after the trading update, it is clear the board prefers to remain listed, so shareholders can benefit from the restructuring programme as well as additional business development and optimisation initiatives now under way.
Judge indicates that the board also views dividends as a way to return value to shareholders rather than other capital allocation options such as buybacks.
However, given that the business is still loss-making, investors should not expect juicy dividends to form part of the Trellidor story in the short term. But the company believes dividends, when appropriate progress and profitability have been achieved, can be activated to reward shareholders as part of the journey back to historical operating performance around the time of its IPO (initial public offering) in 2015.
Ahead of its listing Trellidor placed shares at 600c a share. The company’s first three financial years as a listed company produced collective annual earnings of 163c a share with dividends topping 82c a share — which puts the current share price of 124c in stark perspective.
The critical question is whether Trellidor can reclaim its previous profit heights. There is an increasingly audible argument that, while safety systems are an economic sweet spot in crime ridden SA, technological advances in property protection systems have lessened the demand for physical security barriers.
Part of the restructuring process over the past 18 months saw Trellidor offloading Taylor Blinds, which it bought in 2016 but never really achieved synergies with the core security barrier business. The company also sold its NMC South Africa business to Sole Ceramics.
This leaves management to focus entirely on running its traditional security barrier business, which operates in South Africa, other parts of Africa, and the UK. South Africa remains the bulk of the security business, with 85% of total revenue coming from local business.
The remaining 15% of rest-of-world revenue is a nice diversifier in terms of currency and geography. But given the dominance of the South African business, strong results from these markets will struggle to move the needle overall. Investors will also be aware that the UK economy has gone through something of a lost decade post-Brexit and doesn’t present an entirely favourable macro environment for Trellidor either.
Judge believes that, with changes to its go-to-market strategy, the business will bring additional focus on commercial work through dedicated business-to-business sales coupled with its traditional franchise model, which caters more to retail and small businesses.
The manufacturing operations have also been restructured, and Judge says they are looking at additional product lines outside its traditional security barrier product line that can be easily made at their manufacturing facilities. This should drive and enhance utilisation through the factory.
Judge also notes that, given the restructuring already undertaken, there is no need for additional capital expenditure to service any uptick in revenue. The capital base has been set, and this fixed cost now just needs volume-related operational capital expenditure to be spent in line with revenue growth.
This, importantly, suggests operating margins might have a decent uplift on the back of revenue upticks. It’s worth noting that the trading update noted that in the first couple of weeks of financial 2027 there was an improvement in business performance.
Overall, Trellidor has taken a lot of pain over the past 18 months and made far-reaching decisions and cuts to return the business to its roots, where its brand name is ubiquitous in the local market.
Time will tell whether all the hard yards were worth it. Essentially management can control the restructuring and internal optimisation of the ongoing business, but Trellidor still operates in a moribund SA economy where consumers and businesses have tightened budgets. So, driving revenue growth is not completely within management’s control.
At this delicate juncture, a wait-and-see approach may be best with the first-half financial 2027 result a crucial marker of whether these back-to-basics initiatives are gelling.
