Net-Net Shares Series #2: Hulamin – A Cautious Hold with Hidden Potential
Can Rassie Erasmus and Warren Buffett Teach Us Something About Hulamin?
Hello Friends,
Welcome to the second edition of my series on Net-Net shares on the JSE! Today, we’ll take a deep dive into Hulamin Ltd., Africa’s leading aluminium fabricator. But before we get into the nitty-gritty of balance sheets and valuations, let me share a short story that sparked an interesting idea.
Rassie Erasmus and Warren Buffett: Lessons in Human Capital
This weekend, I watched a brilliant breakdown on Squidge Rugby: “Is Rassie Erasmus Rugby’s Greatest-Ever Coach?” (Watch it here). The comparison between Rassie Erasmus and Eddie Jones was fascinating.
While Jones is known for his robotic, rigid leadership style (that hasn’t always won him friends), Rassie shines through his emotional intelligence—reading people, earning trust, and knowing how to bring out the best in players. Squidge argues this EQ could be the secret sauce behind South Africa’s success under Erasmus.
This reminded me of a Monish Pabrai story about Warren Buffett. Now, I might not have every detail right, but the essence is this: When asked how he works so well with people, Buffett admitted that he doesn’t. Instead, his skill lies in identifying the one exceptional person in a room full of 100. Of those 100, maybe 10 are above average, but he focuses only on the true A-player, ignoring the rest. It’s a bit like his investing style: he only buys A-grade companies and avoids the Bs and Cs.
I like to think of this lesson whenever evaluating investments—don’t get distracted by “good enough” opportunities. Go for the exceptional—or at least, the ones trading at a ridiculous discount. Speaking of which, that brings us to Hulamin.
Hulamin Ltd. – A Net-Net Investment Opportunity?
Download my three AI generated reports on Hulamin below for more detailed reading:
1. Investment Thesis focussing on Moat, Capital Allocation and Business Quality
2. The Warren Buffet Way - Tenets
3. Net-Net Checklist (Based on My Net-Net Strategy by Dirtcheapstocks)
Hulamin, a leading aluminium fabricator, sits at an interesting crossroads. The company has solid market positioning, a strong product mix (think beverage cans and light-gauge foil), and significant capacity. Yet, with fluctuating profitability, operational challenges, and industry pressures, it’s trading below its Net Current Asset Value (NCAV). Let’s explore whether Hulamin is an opportunity worth pursuing under a net-net strategy, Benjamin Graham style.
Key Investment Highlights
• NCAV Calculation:
Hulamin qualifies as a net-net stock, with its NCAV (R1.94 billion) exceeding the current market cap of R1.31 billion.
• Operations and Market Position:
Hulamin’s aluminium products serve high-margin markets like automotive and FMCG packaging, giving it some breathing room in a competitive global industry. It also holds the title of Africa’s only aluminium rolling mill, giving it a natural moat.
• Sustainability and Recycling:
Hulamin emphasizes recycling initiatives, aligning itself with global sustainability trends. In the long run, green aluminium demand may offer a tailwind.
Challenges to Watch
• Operational Issues:
A recent fire at its CCL2 plant impacted capacity, and load shedding continues to drag on operations. Plant reliability will be a critical factor going forward.
• Fluctuating Profitability:
Hulamin’s Return on Invested Capital (ROIC) in 2023 was like 6%, below the Weighted Average Cost of Capital (WACC) of around 15%. That’s concerning—it shows that the company has struggled to generate returns above its cost of capital.
• Currency and Commodity Risk:
Like many South African exporters, Hulamin is sensitive to exchange rate fluctuations and volatile aluminium prices, making cash flow unpredictable.
Valuation and Margin of Safety
From a net-net perspective, the stock is intriguing because its liquidation value exceeds its current market price. Additionally, Hulamin’s Price-to-Book (P/B) ratio is below 1, signalling undervaluation. With an estimated 40.92% margin of safety, the stock offers some downside protection.
However, the investment case is not without risk. Operational inefficiencies, rising costs, and global trade pressures could prevent the company from realizing its full potential, meaning the market might be pricing in more than temporary challenges.
Recommendation: Hold
Given its net-net status and market leadership, Hulamin may offer a decent turnaround opportunity. But until we see improvements in profitability and operational stability, it’s safer to adopt a “Hold” position for now.
If management can improve ROIC, stabilize cash flow, and navigate South Africa’s economic headwinds, Hulamin could become a buy candidate. For now, it’s best to monitor the company’s progress while enjoying the built-in margin of safety.
Takeaways and a Closing Thought
If Warren Buffett were scanning the JSE for net-net investments, Hulamin would probably catch his eye—it’s cheap, has strong market positioning, and offers some potential upside if things go right. But, like Buffett’s approach to people, it’s not enough to find a good company—you need to find the exceptional ones. Right now, Hulamin falls somewhere in between.
As investors, we’ll keep watching, waiting for Hulamin to step out of the “above-average” category and into the A-player camp.
Until next time—keep your eye on the game, whether it’s the markets or the Springboks!
Cheers,
James
P.S. If you missed my first Net-Net post, catch up here. And don’t forget to let me know your thoughts—Rassie Erasmus for GOAT status? I’m all ears!