Afrimat shares jump as first-half profit climbs 60.5%
Afrimat shares jumped as much as 12% in intraday trade on Thursday after the building materials and mining company reported a 60.5% rise in first-half profits, saying the momentum will carry into the second half of the financial year.
Led by CEO Andries van Heerden, Afrimat is one of a few small-cap stocks that has endeared itself to investors over the past decade, having managed to grow its earnings consistently over that time.
Van Heerden, who is widely respected as the consummate deal maker, has overseen the transformation of the company from being largely a provider of construction materials into mining, which accounted for the majority of its profits in the six months to end-August.
Afrimat has recently been bulking up its mining interests, issuing shares worth about R111m in 2020 to take control of Nkomati, while earlier in September it said it had completed the R300m acquisition of Coza Mining, a transaction that included the Jenkins mine.
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Its market value of R7.73bn now exceeds that of Murray & Roberts (R6bn) and Aveng (R3.7bn), once darlings of the local construction sector, which became victims of the boom and bust of the 2010 Fifa World Cup, with big-ticket infrastructure projects now few and far between.
The latest financial results to end-August were mainly boosted by a surge in iron ore prices, as demand picked up as countries came out of the worst of the Covid-19 pandemic. Prices have since fallen again as demand in China slows.
“In its second half Afrimat will have the consequence of a lower iron ore price because it has lost nearly $100 a tonne. There will be significant offsets from coal and the Jenkins operation. So there will still be year-on-year growth in earnings. But a lot of the shine has been taken off,” said Anthony Clark, independent analyst at Smalltalkdaily Research.
The company made “obscene profits” in the first half while these will only be “good” in the second, he said. “But the real kicker to this company will only come in the next 18 to 24 months”, when Gravenhage Manganese and other coal-mining projects will come online.
All three of Afrimat’s segments — construction materials, industrial minerals and bulk commodities — had strong growth in the six months to August compared with the same period a year ago, which was marred by Covid-19 lockdown restrictions.
Headline earnings per share, the main profit measure in SA that excludes exceptional items, rose to R2.95, while operating profit grew 39% to R453.7m.
The industrial minerals businesses, which include limestone, dolomite and industrial sand, returned to pre-Covid-19 volumes across all regions in SA, delivering an increase in operating profit of R51.1m, double that of a year ago.
Construction materials also had a return to pre Covid-19 volumes, with operating profit recovering to R79.5m from R2.8m.
An interim dividend of 40c per share was declared, compared with 36c a year earlier.