Hulamin would seem to be facing some serious problems. Its rating has collapsed to a 4 p:e and its market cap is barely a third of shareholders’ equity.

Still, Evan Walker of 36One Asset Management springs to the aluminium company’s defence, saying: "It has excellent management and is cheap. We like the business and are big holders."

Warren Jervis of Old Mutual Investment Group disagrees: "I do not like its business model. It is unlikely ever to deliver a decent return on capital employed [ROCE]"

At 8%, Hulamin’s ROCE in 2017 was far from inspiring when set against the ROCE of 23.7% produced by another capital-intensive company, Afrox, in its past year.

For the group, its past year to December should have been a good one. At 215,000t, key rolled products output was at a record level — as was total production of 233,000t, which includes extruded products sold mainly in SA.

But with upwards of two-thirds of its rolled products output exported, Hulamin was hit hard by the strengthening of the rand — which began in earnest in mid-November.

The R10bn annual revenue group’s headline EPS (HEPS) in 2017 came in 13% down, with second-half HEPS down 32.4% against a first-half rise of 16.7%.

"The rand took the shine off what would have been a great year for us," says Hulamin CEO Richard Jacob.

He has good reason to be disappointed.

On a constant currency basis Hulamin’s HEPS were an impressive 33% up.

Hulamin’s rand-strength woes are not over. Since its year-end the rand has gone on to gain 4% against the US dollar. Compared with the average dollar price realised by Hulamin in 2017 the rand has strengthened 10%.

The rand is not the only big uncertainty facing Hulamin. It may also have to deal with US president Donald Trump, who has declared his determination to protect the hard-pressed US aluminium and steel industries.

Trump fired his first protectionist salvo in October when the US imposed anti-dumping tariffs of up to 162% on aluminium foil worth about $400m, imported annually from China.

"It has created a lot of turmoil and uncertainty in the world aluminium market," says Jacob.

Jervis says: "Chinese aluminium manufacturers will find other countries to target for dumping their products."

US protectionism was ratcheted up further with the imposition, from March 5, of import tariffs of 25% on steel and 10% on aluminium.

Ostensibly, Hulamin ought not to be affected. SA exports to the US are duty-free under the Africa Growth & Opportunity Act and Generalised System of Preferences legislation.

But with Trump having declared trade wars to be "good", things could change.

Jacob is concerned. "There could be some tariff constraints on our exports," he says. "The US represents 20% of our sales."

Walker believes the outstanding quality of Hulamin’s products is standing it in good stead. It is enabling it, he says, to pursue a strategy of increasing the volume of higher-profit-margin products in its sales mix.

"Hulamin is in a [product] transition phase and is a share to be held for five years," says Walker. "It is already seeing demand for its products from the likes of Boeing and Tesla."

Jacob is also upbeat about the potential to continue generating "significant" cost savings through initiatives including better procurement and an increasing use of scrap flowing from the beverage industry’s swing to aluminium cans.

In 2017 Hulamin succeeded in taking out costs of R117m, with a further R300m earmarked to be removed by 2022.

While cost savings are good news for Hulamin investors, they are a minor detail when compared to the potential profit volatility the rand — or even Trump’s protectionist ambitions — could create.

There is another risk to be considered. It comes from the aluminium metal price lag.

The price lag is an involved subject but, in essence, Hulamin buys aluminium at the London Metal Exchange (LME) spot price. The metal remains on its books for three months until processed and sold.

During the three months, a fall in the LME spot price results in Hulamin recording a loss while a rise in the spot price results in a profit. It is a process that has created huge volatility in Hulamin’s HEPS in the past.

With the LME aluminium price rising, the price lag earned Hulamin a profit of R150m in 2017 and R50m in 2016. But it was a different story in 2015 when a 22% slide in the LME aluminium spot price left Hulamin with a R161m price-lag loss.

All in all, Hulamin is a complex company facing a number of imponderable risks.

It is definitely not a share for even moderately risk-averse investors.

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