Afrimat extracts growth from a tough market
JSE-listed materials supplier, Afrimat, successfully exploited the start of an uptick in the business sector to deliver the promised stronger performance for the six months to August 2010 ("the period"). The group is specifically reaping the benefits of contract crushing in the Mining & Aggregates division, demonstrating the success of its flexible business model utilising mobile equipment. The near-final acquisition of the Glen Douglas mine will pave the way for profitable exposure to the industrial minerals market in line with Afrimat's diversification strategy.
Revenue for the period of R456 million was up 16% from R392,5 million at August 2009. Headline earnings increased by 5% to generate 29,9 cents per share, up slightly from the comparative period, despite the dilution from the group's BEE transaction and the introduction of new legislation which heaped on royalty expenses.
Afrimat declared an interim dividend of 6 cents a share for the period, matching the interim dividend in 2009.
CEO Andries van Heerden is satisfied with the group's improved performance especially given tough economic conditions for most of the period, and commends the contribution of the group's bedrock division Mining & Aggregates. Higher sales volumes and busy contracting activities gave the division impetus. He is positive that Afrimat is well on its way to becoming the market leader in contract crushing, supported by the group's steadily growing market share.
Van Heerden says he is not apprehensive of major projects concluding or to conclude in the near future, as Mining & Aggregates is successfully replacing these with new roads projects across the country. He also points out that the Western Cape is no longer the trouble spot of the recent past. "The economy in the Western Cape, while certainly not buoyant, has plateaued, and our operations in the region continue to make a stable contribution to Afrimat's top and bottom line."
Readymix Concrete and Concrete Manufactured Products both suffered price squeeze during the period. "Higher volumes in Concrete Manufactured Products offset pricing pressure somewhat and drove results only marginally lower than the previous comparative period," he adds. He explains that Readymix Concrete is continuing to battle delays in government housing projects in KwaZulu-Natal.
Looking to the future van Heerden says: "We are actively optimising existing operations and the current infrastructure order book is expected to contribute substantially to the group's activities for the remainder of the year." He cautions though that the Readymix Concrete and Concrete Manufactured Products divisions will still feel the pinch of pricing competition and tight margins. To this end management will focus on stringent cost control.
With the acquisition of Glen Douglas - which is in the final stages of being concluded - the group's diversification into complementary industries is well on track. "The mine has a high volume output and a strong customer base. Management resources are already on site assessing ways to maximise efficiency and reduce costs to boost profit." Afrimat has a track record of successfully integrating acquisitions and ramping up the businesses, such as with the Denver quarry in the Eastern Cape.
Afrimat's share closed Friday at R3,32. This puts the company on a PE of 6,47 making it an extremely attractive investment.
Nicole Katz/Michèle Mackey
(011) 325 5944 / 082 497 9827
On behalf of: Afrimat Limited
Andries van Heerden, CEO
021 917 8840
Issue date: 8 November 2010