Afrimat – 1H FY24 Results
Key message: Nkomati should contribute substantially in 2H with steady state achieved in Oct 2023.
- Afrimat released 1H FY24 results, with HEPS increasing 4% to 263.4c on a 10% increase in revenue and 4.3% increase in operating profit. Lower iron ore prices and logistics issues (rail) were the main cause of lower margins. Cash flows remain strong with all capex and acquisitions (Lafarge) to be funded from internal resources. A 40c dividend was declared, with full year cover expected to be stable at 2.75 times.
- Iron Ore: Iron ore sales increased by 30% as local sales to AMSA picked up to levels of approx. 82ktpm and is expected to maintain (AMSA could take up to 100ktpm). Poor domestic rail performance is being replaced by trucking at competitive rates, thereby allowing sustainable local sales. Export sales declined by 10% due to Transnet performance. This is expected to improve marginally into 2H.
- Nkomati: Nkomati made a slight loss with the ramp-up to steady state taking 6 months longer than planned (unexpected dike in u/g mine, moving of housing near to open pit). However, October ROM tonnages will be almost 70kt– the interim steady state tonnage (this can be increased to 100ktpm). The yield is better than expected. 10% of production is being exported (high phos. product that cannot be sold locally).
- Glenover: Phase 1 of the development is underway (total cost R900m) with sales being generated from high-grade phosphate stockpile sales.
- Construction Materials: a strong recovery in demand driven mainly by roads (nationally) and ballast purchases by Transnet.
- Industrial Minerals: Loadshedding impacted production but curtailment agreements and gensets are now in place to mitigate this.
- Working capital increased as buffer stocks were built up in Bulk Materials. Debt/equity will increase to 20% should the Lafarge acquisition get approval from CompComm, funded internally. We forecast strong growth in earnings in FY25 as Nkomati contributes fully and local iron ore sales remain at current levels. Glenover should contribute in the medium-term. Afrimat’s ability to generate quick payback periods for acquisitions remains intact, with most development capex for existing projects already expensed.
- We have adjusted our Target Price to R90 (from R85).