In short: His flagship serial-acquirer position and the entire worked example of the talk — Milkwood's 15% became 30% as the CEO bought back half the shares, and the UK bolt-ons now compound cash. "Argent today, 293 [million rand], I would expect them to be around 350 next year, 420 the following year, and 500 the following year… 10 times, let's say a 10 multiple, is 100 rand a share. Today, the share price is 40 rand a share. So, you're paying four times what is a very achievable outcome" — plus net cash on the balance sheet he ran out of time to discuss.
Argent is a small Johannesburg-listed industrial group — best known in South Africa for Expand-a-Gate security gates and Jetmaster fireplaces — that has quietly turned itself into a buyer of small British manufacturers. Summerton's fund, Milkwood, owns about 30% of it, so this is his own book presented as a case study.
The story starts in 2016: the shares had fallen from about R20 to about R4, and the company was worth more dead than alive — you could have shut it down, sold everything and doubled your money. He bought 15% from institutions that had given up (Sanlam alone sold him 8%) after eighteen months of deciding the CEO was honest, which is his real entry test. He then asked for two things: sell the divisions earning nothing, and use the proceeds both to buy back shares — cheap, because the stock traded at half of what the assets were worth — and to buy businesses in the UK.
The buyback is the part most investors miss. Argent retired roughly half its shares (about 95 million down to 53 million), so Milkwood's 15% became 30% without buying another share. Meanwhile the cash goes into small UK industrial firms — the people who fit tanks to airport fuel trucks, or make supermarket trolleys — bought from owners retiring at 65 or 70 for three or four times annual profit. That is a ~20–30% return on each purchase price, and there is no shortage of sellers: 5.5 million small UK businesses, roughly 20,000 of them manufacturers earning over $1m a year and owned by nobody bigger.
His arithmetic, which he calls real numbers: R293m of profit last year, redeployed each year into more of these cheap businesses, becomes roughly R350m, then R420m, then R500m. Divide R500m by 50 million shares and you get R10 per share of earnings; put a modest 10× multiple on that and the shares are worth about R100. They trade at R40, with net cash on top. The obvious risks he names himself: it took two full years of a flat share price before anything happened, and the whole machine depends on one honest, motivated CEO continuing to allocate capital well.
17:20Let's say — and these are real numbers. So, let's say Argent for example, I made 293 million rand last year of profit. Bottom line, cash flow equals profit. And let's say you take the 293 million and you buy things that are like a 20% free cash flow yield. That's what you pay. Five times. So, that adds another, let's say, 70 million, 60 million to your earnings, your cash flow for the following year.
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