Afrimat eyes acquisitions

Expects ‘bargain buy’ opportunities as a result of coronavirus.
The group is pursuing several opportunities in line with its diversification strategy. Image: Moneyweb

JSE-listed Afrimat, which last week reported record financial results, is pursuing several acquisition opportunities in line with its diversification strategy.

The open-pit mining group and supplier of industrial minerals, commodities and construction materials is also prepared for “bargain buy” opportunities that become available in the construction materials sector in the next few months because of the impact of the Covid-19 lockdown.

Afrimat CEO Andries van Heerden said last week the group saw “very interesting opportunities” in the commodities space.

“We are really interested in one or two very exciting opportunities in the iron ore space to grow our base there,” he said.

Another opportunity is with JSE-listed Unicorn Capital Partners, a company that owns the Nkomati Anthracite mine in Mpumalanga.

Afrimat earlier this year acquired a 27.27% interest in Unicorn Capital Partners.

Minerals

Van Heerden said Afrimat sees some opportunities in other minerals “which I shouldn’t necessarily mention just yet” and there are also two “nice” industrial minerals opportunities.

“We are looking at one specific area that makes us excited,” he said.

Van Heerden said the group does not see many construction materials opportunities “right now” but “we do expect things to change and expect there will be some bargain buys in a couple of months from now”.

Van Heerden highlighted the benefits that have resulted from Afrimat’s diversification strategy, which commenced in 2009.

The strategy led to Afrimat acquiring Glen Douglas Dolomite in 2010, the Clinker group (whose product is used primarily by the concrete manufacturing industry) in 2012, construction and industrial products manufacturer and supplier Infrasors in 2013, Cape Lime in 2015, and Northern Cape iron ore producer Diro Manganese and Diro Iron Ore, which was later renamed Demaneng, in 2017.

Chinese exports

Post-acquisition, Demaneng concluded a multi-year agreement to provide iron ore to the Chinese market through a South African based exporter.

Iron ore is currently the biggest contributor to Afrimat’s operating profit at 53% despite it only contributing 31% to the group’s total revenue in the year to end-February 2020.

Read: Afrimat’s move into mining pays off handsomely

Van Heerden said Afrimat would have just more than doubled its headline earnings a share from 2009 until end-February 2020 if the group had not diversified and remained only in construction materials.

He said this is not bad, adding that the group has not followed the trend of several other listed construction materials companies to zero in this period.

Van Heerden said Afrimat is now making almost R7 after tax profit for every rand it made in 2010, which he attributed to the group’s diversification strategy.

“Some are doing better than others, but combined gave us that growth.

“Afrimat has presented consistently over the last 12 years and our results are there to show it.

“We have consistently delivered on a diversification strategy that is working very well. We have a very strong healthy culture in the business, a good balance sheet and we should be well-hedged against the uncertainties of the future,” he said.

“That doesn’t say that the future is not uncertain, it doesn’t say there is a good future ahead for everybody, but we say we are well positioned to grow the business in this environment.”

Looking ahead, Van Heerden said the iron ore business should continue to perform well given the supply constraints in the world market and the quality of the South African product, while the group is continuing to work on expanding the range of products in its industrial minerals business.

Van Heerden said Afrimat is quite confident that its construction materials business is probably “the best positioned construction materials business in South Africa”.

“If the government really wants to stimulate the economy – and if we listen to what the president has said about infrastructure spending – [that will be] the big driver.

“We are in a very good position. You might even see a repeat of the mid-2000s if they are really serious about stimulating the economy,” he said.

Results

Afrimat on Thursday reported a 48.5% growth in headline earnings per share to 347.7 cents in the year to end-February from 234.1 cents in the previous year.

Group revenue rose 11.4% to R3.3 billion from R3 billion.

Operating profit increased by 27.5% to R601 million from R471.2 million and the operating profit margin improved to 18.2%.

Net cash from operating activities increased by 64.9% to R676.8 million, resulting in an improvement of the net debt to equity ratio to 8.2% from 23.8% in the prior year.

Afrimat’s board postponed the decision on the declaration of a final dividend until further notice because of uncertainty about the actual impact of the Covid-19 pandemic on the world, the South African economy and in turn Afrimat.

David Metelerkamp, senior economist at Industry Insight, said this month the impact of Covid-19 on the construction sector will be catastrophic and result in it shedding an estimated 120 000 to 140 000 formal jobs.

Read: SA’s construction industry faces disaster due to lockdown

Metelerkamp said the increases in government spending on Covid-19-related stimulus will put severe pressure on government’s finances, which will mean less spending on infrastructure going forward.

Shares in Afrimat rose 2.62% on Friday to close at R27.00.

 

Afrimat share price in the past year

 

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African billionaire Patrice Motsepe, has acquired an 18.36% stake Afrimat.

Part of me believes people in power have relished the lockdown for the predatory opportunities that now present themselves to this situation.

There will be many opportunities like this. At the end of the day it will be interesting to see who picks up bargains, those in power…or those who were wise and prudent in their pre covis dealings.

Had our dear ANC not looted us dry we could be stocking up on oil amongst other stuff needed for SA. But alas not this time.

End of comments.

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