Mustek [JSE: MSTJ]

July 17, 2023

Financial Analysis on SA small-cap Mustek. Buy/hold/sell?


Mustek Limited is a South Africa-based assembler and distributor of personal computers and complementary information and communications technology (ICT) products. The company's segments include Mustek, Rectron and Group. 

  • The Mustek segment is engaged in the assembly and distribution of computer products and peripherals, including Mecer-branded products and related services. 
  • The Rectron segment is engaged in the distribution of computer components and peripherals. 
  • The Group segment includes investments in associates and other investments and loans. 



David Kan was the co-founder and CEO since the Group's inception in 1987. Sadly, Kan passed away in May 2022. Kan had significant skin in the game, owning 25.4% of the company. How will the company progress without Kans leadership and expertise? Time will tell.  


Technical Analysis

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Market structure is always the first variable to assess when looking at price charts. We ideally want to see higher highs and higher lows, or we want to see the price at a strong historical support level. In Musteks case, the share price has been on a tear since early 2020, rocketing from around 400c all the way to 1600c. A clear upward trend has been established. The question is is the momentum running out of steam?

The RSI is in oversold territory, peaking at around the 75-80 level. This indicator, together with the MACD, shows a potential loss of momentum in the share price. Maybe its time for the price to cool off slightly before the next leg up.

In terms of long-term support levels, we do have strong support at around the 950c level. If we put Mustek on the Watchlist, this will be our entry point in the future, should the fundamentals hold up. 



Revenue has been growing at a good pace. Growth % the last 5 years: 1.5%, 2.1%, 11.3%, 23.7%, and 12.5% in 2021. The groups two largest segments, Mustek and Rectron, grew their revenues by 16.1% and 11.1% respectively. The Groups information technology (IT) training company, Mecer Inter-Ed, is starting to contribute meaningfully to the Groups revenue and profitability.

Gross profit has been fairly stable at around the 15% level and reported at 16.2% in 2021, predominantly as a result of the increased demand for the Groups products and worldwide supply shortages

Operating expenses have been consistent at around 70% of gross profit, with selling, general, and admin expenses making up the bulk of this category. In summary, gross margin equals 16.2%, operating margin 6%, and Net income 3.63%. 

Due to the nature of the business being a distributor of goods and not a manufacturer, margins will always be low. The challenge is to increase the quantity of output, and secondly to improve managerial efficiency by increasing the operating margin.

The balance sheet holds no real surprises. The company has a quick ratio of 0.6, which is a little bit low, but the current ratio of 1.27 does indicate that is has enough coverage for its short-term obligations. 

Musteks headline EPS is 17.3% higher at 237c (31 December 2020: 202c) and basic EPS is 17.9% higher at 232.72c (31 December 2020: 197.34c).

The company has very little long-term debt which is always a positive sign. The LT Debt to Equity ratio currently stands at a mere 6%. Net finance charges decreased from R35.7 million to R28.4 million as a result of reduced average debt levels.


Bull factors

Industry: As an IT-focused business, the Mustek Group is ideally placed in an industry benefiting from the catalyst move into the digital era as brought about by the covid pandemic.

Share repurchases: Mustek acquired 5 000 000 ordinary shares of its issued share capital in an aggregate of R66 612 153.66. The general repurchase took place from September to December 2021.

Valuation: Musteks valuation metrics look promising. It includes a P/E of 3.4, P/S of 0.11, P/CF of 5.82 and P/FCF of 1.85. These metrics all scream undervalued.


Bear factors

Small-cap company: Mustek is still well and truly a small-cap stock. Small caps are often overlooked and liquidity is often low on trading platforms. On the flip side - being a small-cap also presents an opportunity because it is not well covered by institutions. Should the company continue to perform well, it could see an influx of new investors.

Technical analysis: The share price has been on a tear for the past couple of years. Though this does not mean it cant continue its rally, it does pose a concern, especially when considering the RSI and MACD indicators.

Kan passing: Sadly, CEO David Kan passed away in May 2022. He was steering the wheel for more than 30 years. Time will tell how the company adjusts in Kans absence, both in terms of management and performance.


FinMeUp position

Mustek is on the Watchlist for now. We will continue to monitor the companys progress and make a call when the next set of financial statements are released.

Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only.



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