Trellidor Holdings (JSE: TRL) faces operational challenges, evident in declining returns on capital employed (ROCE) and reduced revenue. With a ROCE of 11%, below the industry average, concerns arise from a five-year trend showing declining ROCE alongside reduced capital employed. The increased reliance on current liabilities (52% of total assets) further complicates the financial picture. Shareholders, seeing a 40% decline over five years, may seek improved metrics to regain confidence, especially as revenue dropped 2.1%.
CEO Terry Dennison’s compensation aligns with industry norms, backed by Trellidor’s performance growth of 27% in earnings per share (EPS) and a 22% total shareholder return over three years. However, amidst revenue challenges, the focus at the upcoming AGM might shift to strategic steps for sustained growth.
The stock’s price-to-sales (P/S) ratio of 0.4x remains slightly lower than the industry average of 0.5x. This ratio, tied to revenue trends, indicates investor sentiment and growth prospects. Trellidor’s recent revenue dip contrasts with its longer-term growth, reflecting a challenging market landscape.
Technical Analysis:
The week chart shows that Trellidor’s stock currently sits at 178 cents within a descending triangle pattern, trading under key moving averages [50-SMA (blue line), 100-SMA (orange line), and 200-SMA (red line)]. The RSI trended lower to 40.56, indicating a bearish sentiment.
Short-term opportunities might emerge towards the 160 cents support level upon continued downward pressure. A breakthrough could lead to a further decline towards 135 cents. However, short-term trading opportunities towards the 220 cents resistance level could arise should the price action fail to sustain a push lower. A break above the initial resistance and possibly a triangle could confirm the bullish momentum, likely bringing the 250-cent and 269-cent resistance levels within the bulls’ reach in the short term.
Summary:
Trellidor Holdings faces significant challenges, evidenced by breached debt covenants and declining financial metrics. Bearish sentiment persists as the price remains within a descending triangle pattern. Potential short-term downside targets are 160 cents and 135 cents, while a bullish reversal could test resistances at 220 cents, 250 cents, and 269 cents.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, Datatec, IOL, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
