Key message: A loss in 2H was driven mostly by the temporary ferrochrome smelter closures.
- Afrimat released a Trading Statement for FY26. HEPS is expected to increase by 27-37% to 91.8 – 99.1c.
- Key takeaways from the Results: The update infers a loss in 2H of 2-10c. We expect that this is caused mainly by Nkomati Anthracite not operating for the bulk of 2H as the ferrochrome smelters all shut down and the Industrial Minerals being impacted by the same closures. The 2H loss for Nkomati appears to be close to R100m. The cement business narrowed losses. The Aggregates business posted an improved performance with the Lafarge businesses contributing well into a slightly improved market. The iron ore business increased volumes sold but revenue was impacted by marginally lower iron ore prices and a stronger ZAR.
- The update was worse than expected but was impacted by what may be once-off issues due to the closure of all ferrochrome smelters in 2H. After the successful negotiations with Eskom to reduce electricity prices to sustainable levels the ferrochrome smelters are starting up again and this should result is a swing of profitability of approx. R300m in FY27.
- Local iron ore sales remain strong despite ongoing challenges at the only customer Arcelor Mittal SA. We do believe that these volumes are sustainable as they are going to the Vanderbijlpark works which are likely to remain open in any of the likely reconfiguration of AMSA. Export iron ore volumes should increase over the forecast period due to an improvement of rail performance and the expected allocation adjustment.
- The FY27 performance should improve substantially now that Nkomati is back to full operation with an expected operating profit swing of approx. R300m.
- Net debt levels are just under R2bn. This should represent the peak gearing levels and Afrimat is focused on reducing the debt burden as fast as possible. Debt service is comfortable even with the weak FY26 result.
- We adjust our Target Price to R56.00 (from R52.50).