BROKERS’ NOTES: Buy Afrimat, avoid Famous Brands

Buy: Afrimat

The past year was one that construction materials and mining mid-cap Afrimat would be glad to see behind it. A combination of external and geopolitical issues ravaged the company’s earnings. A slide in the global iron ore price due to slower economic growth in China, alongside political violence after the election in Mozambique that resulted in border closures in late 2024, hit the throughput of anthracite from mine to port. Both affected Afrimat’s dominant bulk commodities division. Competition Commission delays in approving the giant Lafarge deal resulted in hefty losses from cement, though integration of the vast aggregates division did occur. Transnet rail issues and problems at its largest domestic iron ore customer, ArcelorMittal, were also a factor. Finance costs rocketed 187% due to debt from deals and expansion. FY2025 headline earnings per share slumped 87%. Over 12 months, Afrimat’s share is down 26% to R51.12. I believe Afrimat now has things under control, but recovery will take 18 months. With a solid management team and years of goodwill thanks to excellent capital allocation, the market should look through 2024 as Afrimat’s annus horribilis. One for the patient. Accumulate with a price target of R65.

Avoid: Famous Brands

Over five years, the Famous Brands share price has gone sideways as challenging domestic conditions in fast food and casual dining have bitten. The group is also saddled with residual R1bn debt from the ill-fated expansion into the UK in 2016. Famous Brands operates with two distinct offerings: Leading Brands (which includes well-known brands such as Debonairs, Steers and Wimpy); and the smaller Signature Brands (Mythos and Paul). In its recent annual results the company reported revenue of R8.3bn (up 3%), with flat growth in food brands at R1.2bn. Cost savings and efficiencies — alongside the cessation of load-shedding costs — resulted in operating profit rising 12.6% to R914m. Growth was slim in food, with much of the profit gains emanating from the manufacturing unit. With consumers under pressure in a tough economy, revenue growth will be constrained; any gains will come from cost savings and efficiencies. Famous Brands has a stellar portfolio and continues to expand its footprint, but is best avoided until consumers start spending again.

Clark is the founder of SmallTalkDaily