Omnia surprised shareholders a few months ago by not only declaring a sizeable final dividend of R2 per share, but also a special dividend of R4 per share following the sale of its interest in Oro Agri for R2.2 billion during the financial year to March 2021.
Management said then that Oro Agri did not fit perfectly with Omnia and that it needed billions in capital expenditure to reach its full potential, something the board of directors was not too keen to support.
The company announced on Thursday that it has sold another subsidiary, Umongo Petroleum, part of Omnia’s chemicals division for the last four years or so.
Omnia CEO Seelan Gobalsamy tells Moneyweb that Omnia was not actively looking for a buyer or touting the business as for sale, but the offer was welcome as Umongo also does not fit Omnia 100%.
“Omnia is looking to focus on its two core divisions, agriculture and mining,” says Gobalsamy.
“Umongo – while being a good business – operates in a different market, producing petroleum-based lubricants and fuel additives.
“Following consistent strategic execution which has placed Omnia in a healthy cash position, the group is driving the ‘reset and growth’ phase of its strategy.
“Omnia is actively pursuing value-adding organic and inorganic growth opportunities, investing in greener technologies and focusing on relevant geographic expansion with a view to enhancing Omnia’s positive impact in the world,” he says.
The formal announcement of the transaction notes that Umongo supplies lubricant additives, base oils, process oils and chemicals, as well as technical solutions to lubricant blend manufacturers in sub-Saharan Africa. It is the sole distributor for Chevron Products (base oils) and Chevron Oronite (additives) in SA and several other countries in Africa.
“The proceeds from the transaction represent an excellent cash return and will further strengthen our capital position. It will provide additional optionality to create value for shareholders, either through capital allocation towards growth opportunities or by returning the cash to shareholders,” says Gobalsamy.
The return was excellent. The official announcement of the transaction states that Omnia acquired an interest of 90% in Umongo in 2017 and paid a total consideration of R637 million after taking into account certain earnings thresholds, as is often the case when acquiring a business.
Omnia has now sold 81% of Umgongo for around R1 billion to Orkila South Africa – a subsidiary of Azelis SA. Azelis is a global service provider in the speciality chemical and food ingredients industry.
Omnia and Orkila have struck an option agreement for Omnia’s remaining 9% of Umongo. The structure – which will net Omnia another R86 million to R105 million – will settle during the next two years.
Not a bad return on the original purchase price of R637 million at all.
Omnia noted that an evaluation of the balance sheet at the end of its financial year (March 2022) will determine what to do with the proceeds.
Gobalsamy says the options include:
- Investing it for growth;
- Maybe acquiring an asset that will ensure high returns; or
- Returning it to shareholders by way of a dividend or share buyback.
The figures at the end of the last financial year indicate that shareholders might be excused if they expect another sizeable dividend.
The balance sheet showed little debt, except for the usual trade creditors, while strong operating cash flow (nearly R2.2 million in the 12 months to March) and the sale of Oro Agri pushed the cash balance to R1.8 billion.
Omnia went on to pay a final and special dividend – which sent some R1 billion into shareholders’ bank accounts.
The sale of Umongo just about replaces this, and Omnia can be expected to report good results in the current financial year too.
The agricultural season has started well in SA with good rains over most of the country, while the boom in mining prices has made headlines.
Gobalsamy could not discuss Omnia’s immediate prospects as the group is currently finalising its results for the six months to September, which will be announced within a few weeks.
The share dropped nearly 4% to R63 on the JSE after the news broke on Thursday – but it had added around R12, taking it to R65, over the past few weeks after Omnia warned shareholders that negotiations were afoot that might affect the share price.
It is worth noting that investors have done well with Omnia over the last 12 months. The share increased from R39 to the current R63, with the R6 dividend pushing the annual return up to just shy of 77% (before the nasty dividend tax).