JSE newcomer Afrimat's operations dominant in building supplies
Black empowered building supplies group, Afrimat Limited, is well positioned to exploit the R74 billion SA building and construction industry through a diverse product range of Mining & Aggregates, readymix concrete and concrete blocks and bricks. With a strong brand presence the group’s underlying operations are market dominant in the eastern and western Cape, northern KwaZulu Natal, eastern Free State and Namibia. Afrimat is set to harness its 43-year track record to take the group to the main board of the JSE in early November 2006.
Afrimat brings together two industry specialists founded in 1963 and 1965 respectively - Prima mainly supplies Mining & Aggregates to the Cape construction and road building industries and has smaller readymix and precast operations, and Lancaster is dominant in quarrying and the supply of concrete blocks and bricks in northern KwaZulu Natal and eastern Free State. The merged group has 18 quarries, 12 readymix plants and 8 precast factories in total. In addition 5 mobile crushing and readymix concrete plants offer greater geographical flexibility.
Afrimat complements its supply of building materials with drilling and blasting using a fleet of earthmoving equipment and hydraulic rigs. The group also owns a 120-strong fleet of readymix, tipper and delivery trucks. Its customer base ranges from small cash-paying companies to large multinational construction corporations and parastatals including Spoornet.
Forecast revenue to February 2007 of R471,4 million is expected to yield profit after tax (PAT) of R63,6 million, compared with pro forma revenue of R413,4 million and PAT of R46,7 million, respectively, had the group been merged at February 2006. 2007 headline earnings is forecast at R62,8 million, up from pro forma headline earnings of R47,3 million for 2006.
CEO Andries van Heerden says that Afrimat intends to exploit the synergies of the two underlying companies’ to expand product and geographical diversity. “The similar cultures of Prima and Lancaster and historic management links have paved the way for a seamless integration,” says Van Heerden, who was the managing director of Prima until January 2005 when he left and formed the consortium that acquired Lancaster. A number of his Prima colleagues will serve on Afrimat’s board including Prima Chairman Francois
du Toit and CEO Peter Corbin.
He says that each of Prima and Lancaster meet JSE thresholds to list on the main board of the exchange in its own right. “However, the merger is a logical progression in our long-term vision for a listing as a consolidated group.” The Competition Commission has approved the merger.
Van Heerden attributes Afrimat’s combined strength to “the well-established brands of our underlying companies in their regions of operation.” As an example he cites rural KwaZulu Natal where a precast concrete block has become synonymous with a “Lancast”, which supports Afrimat’s strategy to maintain the separate branding of Lancaster and Prima for some time going forward.
He adds that good vertical integration is another key advantage, with the majority of Afrimat’s raw materials now supplied by the group’s own quarries. “Further, a history of consistent profit growth within both Prima and Lancaster and a wide geographic footprint will position Afrimat to capitalise on the buoyancy in the construction market,” says van Heerden.
Afrimat’s current 21% BEE ownership is critical to the group’s prospects. “Our BEE shareholding is ahead of Mining Charter requirements and will optimise our ability to secure national and provincial government contracts,” he says. 100% black-owned company Mega Oils, represented on the Afrimat board by Loyiso Dotwana, and broad based black consortium Kwezi Mining whose Gillian Nonhlanhla Jiyane is a non-executive director of the group, make up the 21% stake.
Van Heerden says that positive industry conditions reflect solid prospects for Afrimat. “Non-residential, low-cost residential and civil engineering sectors of the building industry continue to flourish, driving increasing demand for building supplies.” This growth is underpinned by estimated government spend on infrastructure and low-cost housing, estimated to reach R400 billion in the medium term, and Spoornet and Eskom upgrade and infrastructure projects.
He says it is intended to grow the group quickly post listing. “There are a number of consolidation opportunities in the market and a listed, black empowered platform makes Afrimat an attractive acquirer.” The R75 million new capital intended to be raised for the company before listing will help fund these acquisitions.
The group’s directors are currently involved in a pre-listing private placement of 25 million shares at R5 a share. 15 million shares represent R75 million new capital for Afrimat. The 10 million share balance is made up of existing shareholders who have released a small percentage of the shareholdings to facilitate the listing. Following the pre-listing private placement Afrimat is expected to list with a market capitalisation of approximately R600 million.