Investors will need courage and a good dose of optimism to fork out the required R20 per share to buy more shares in Omnia within the next month or two, given that shareholders saw the value of their investment fall by some 75% over the last year.
The share price dropped from a high of R134 after Omnia first announced disappointing interim results late last year and even worse final results for the year to March 2019 a few months ago.
Omnia reported a loss of R93 million in the first six months that grew to a loss of R414 million for the full year and the share price fell to just more than R33.
This is a far cry from the good days in 2015 when Omnia produced a profit of more than R900 million, paid a dividend of R4.90 per share and hit a share price high of R245.
Omnia has never been for jittery investors. Operating in the uncertain mining industry and seasonal and unpredictable agricultural sector defined it as a risky share.
The company announced in June that it would approach shareholders for R2 billion in new capital and the rights issue was approved by shareholders in July. This was to reduce the company’s high debt level.
Interest-bearing debt increased to more than R5 billion at the end of June compared to R2.6 billion a year earlier, mostly due to expensive expansions, restructuring costs and the big loss in the year to June. At the time, management struck a deal with its bankers to secure bridging finance of R5 billion to consolidate all the interest-bearing debt, with the promise to raise new capital.
What it will take to raise R2bn
The announcement that Omnia and its advisors settled on a price of R20 for the rights issue means that Omnia needs to issue 100 million new shares to raise R2 billion. Shares in issue will increase from 69 million to 169 million.
A quick calculation shows that shareholders will need to invest another R2 900 for every 100 Omnia shares held in the ratio of close to 145 new shares for every 100 held. Or they can earn a few rands by selling their rights when the nil-paid letters start trading, probably towards the end of August.
Omnia said in its announcement that full details of the rights issue will be released within a few weeks. These circulars usually show the effect of the rights issue on earnings and net asset value, based on the previous year’s figures.
It is not difficult to get an idea of earnings on the basis of what they would be if the rights issue was completed at the beginning of the last financial year, even with limited information. Interest paid would have been lower by the amount of interest on R2 billion, say some around R160 million, and earnings higher by the same amount. Earnings per share (EPS) would be based on the higher number of shares in issue.
Basic EPS for the year to March was a loss of R6.09 and headline earnings were a negative R1.12 per share. The difference between earnings and headline earnings was largely as a result of once-off impairments in the value of underlying investments, in this case mostly due to a write-down in the value of Protea Chemicals.
A fair estimate of the effect of the rights issue it that EPS would have improved to a negative R1.45 compared to the published R6.09. Headline EPS would probably have improved from a negative R1.12 per share to a positive 50c, depending on the interest rate and tax payable.
Impairments might be reason for optimism
That is only part of the story. Management stated in the results that it completed the restructuring in Protea Chemicals at a cost of R45 million in addition to the write-down of goodwill by R324 million to nil. The restructuring should reduce costs by R75 million per annum, according to management.
Figures were also impacted by an impairment of R44 million because of what Omnia called a “problematic” debtor in Angola. This bad debt has also been provided for in full.
Shareholders might feel a bit of optimism if they believe the impairments are enough.
Shareholders might also hope for a recovery in the share, if their outlook extends to an improvement in weather conditions this year after droughts over parts of SA impacted on Omnia’s earnings in the 2019 financial year.
Prospects for the mining industry also seem to have improved, with commodity prices remaining strong. For instance, the gold price improved to above $1 500 per ounce this week, while the rand fell to above R15 per dollar.
It is also reassuring that the rights offer is underwritten by respected asset managers, such as Allan Gray and Coronation.