Hulamin warning spooks shareholders
Shares lose more than 10% in the week on forecast of turbulent trading conditions and weaker prices
Aluminium semi-fabricator and exporter Hulamin ended the week on a low as the stock lost 6.49% on Friday, the largest one-day fall in more than a month.
Chair Thabo Leeuw’s statement to shareholders on Wednesday triggered the sell-off as he alluded to several factors that will affect the company’s profits in the first six months of its financial year, one analyst said.
The share was down for most of last week. Hulamin, which was spun out of Tongaat Hulett in 2007, was down 6.22% on Thursday. The shares slumped 10.67% for the week.
“The chairman’s statement was a profit warning. That is why the share price has fallen,” Chris Logan of Opportune Investments said on Friday.
In the statement, Leeuw alluded to turbulent trading conditions in recent months. “Hulamin trades in more than 50 countries worldwide, our largest markets after SA being US and the EU. Volatility in these core markets has made it difficult to maintain a balance in our profile of orders to suit Hulamin’s specific and available product manufacturing capacity,” Leeuw said.
Inconsistent electricity supply resulted in Hulamin’s productivity declining to levels last seen in 2016 and 2017, he said.
“Prices for Hulamin products have softened in the US in recent weeks, most notable in heat-treated plate. Automotive demand, both locally and internationally, has also softened. In contrast, demand for can stock products is firming,” Leeuw said.
Lower margins in the US are likely to hurt profits in the first half of the year, he added.
Logan was critical of the company’s ability to contain costs. Hulamin has a “cost control problem, even though they say they are a low-cost producer”, he said.
For a company of its size, Hulamin has a bloated board. “Anglo American has 12 directors. But a relative minnow with a market capitalisation of approximately R1.3bn has 14 directors,” Logan said. He said that in the 2018 financial year, nonexecutive directors alone cost the company R5.1m.
Hulamin’s market capitalisation was R1.15bn at the close on Friday.
By allowing costs to escalate, Hulamin could not take advantage of the weakness in the rand as it exports some of its products, Logan said.
Hulamin said on Friday that the rand weakened substantially from 2011 to a peak in early 2016, which benefited the company. “Unfortunately, over the same period, declining conversion fees [selling prices], together with the impact of cost inflation — particularly energy and manpower costs — have put pressure on underlying performance. Since 2016, despite a strengthening trend, in general, in the rand, focused interventions in operational excellence, mix improvement and cost reduction improved the trajectory of business performance,” the company said.
In light of the pressure on selling prices, the group said, it will focus on further cost reduction and improving operating efficiencies. Manpower, energy and materials comprise the main components of Hulamin’s manufacturing cost base, it said.