Key message: Consistent volume growth remains the key value driver, and diversification reduces iron ore exposure.

  • Afrimat released FY23 results, with HEPS declining 15% to 458c on a 5% increase in revenue and 13% decrease in operating profit. Lower iron ore prices and logistics issues (rail) were the main cause of lower profits. Cash flow was strong at R1bn with a further R680m raised through the equity raise. Afrimat has net cash and can fund current projects and meaningful acquisitions (+R1bn).
  • Iron Ore: The Jenkins mine is now fully operational. Total iron ore sales increased by 8%. Lower iron ore prices and cost inflation impacted the margin (down to 40.3% from 42.5%). Transnet issues impacted rail volumes (export and local), although some improvement is evident. Local iron ore sales to AMSA picked up strongly post YE and are running at approx. 80ktpm, with AMSA potentially taking 100ktpm.
  • Nkomati: Nkomati has been profitable for the last year and development of the underground and two open cast pits should result in full operation by July 2023. At an expected 40-50% margin Nkomati will contribute meaningfully to Group earnings.
  • Glenover: Phase 1 of the development is underway (total cost R900m) with sales being generated from high-grade phosphate stockpile sales.
  • Construction Materials: overall construction demand remains weak.
  • Industrial Minerals: Loadshedding impacted production and the Agri Lime acquisition contributed a R4.5m operating loss.
  • FY24 should see a significant boost from Nkomati as the mine should get to steady state production by 2H. An improvement in sales to AMSA and a better Transnet performance should boost iron ore volumes.
  • We have adjusted our Target Price to R85 (from R69) as volumes start to recover in the iron ore division and Nkomati looks set to substantially boost results from 2H.
  • Acquisition opportunities continue to be assessed and this remains a key part of the growth of Afrimat.

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