Hulamin sets example for ailing steel sector
As SA’s steel industry appears to be going into terminal decline, the aluminium market has been looking up. The pride of South African aluminium production, Hulamin, has just reported strong interim results to June 2017, despite a stronger rand.
In the year to December 2016, Hulamin produced the best set of annual results in its history on greatly improved production, tighter capital controls and a weaker rand. In its interim to June 2016, it doubled net profit for the period to just R11.7m shy of full-year profit of R163.7m to December 2015.
Net profit in the six months to June 2017 of R178m has now well exceeded the latter. This comes as aluminium prices have risen further. Analysts say if the rand had not gained in the latest period, its results would have been even better.
The aluminium price on the London Metal Exchange closed at more than $1,900 per tonne, following lows of below $1,500 in late 2015 and early 2016. This gave Hulamin a price-lag profit of R78m in the interim period.
Kagiso Asset Management head of research Abdul Davids says Hulamin’s results came in better than his expectations. Good cost control and volume growth offset the stronger rand, and higher dollar-denominated rolling margins also assisted the top-line.
As the JSE pushed further into record territory this week on rand weakness, rand-hedge stocks came into strong focus. Hulamin exports about 60% of product to the US and Europe.
SA’s struggling steel industry would do well to take a leaf out of Hulamin’s book. The firm overcame fears of BHP Billiton halting supply of rolling slab from a defunct Richards Bay smelter by doing a canny black economic empowerment deal.
As specialist property funds come to market, their managers will need to prove that they have the necessary skills to maintain operationally intensive assets. This week, after prolonged speculation because of the strong investment case for student accommodation, a student housing fund announced it would list on the JSE next month. Inkunzi Student Accommodation Fund should be followed by the listing of a few more student housing groups.
It joins self-storage group Stor-Age and residential property groups Indluplace and Balwin as a specialised group in the JSE’s real estate sector.
The sector has run hard for about five years and investors are hungry for opportunities in nontraditional property types. SA’s economy is struggling to accommodate its many shopping centres and is also struggling with office vacancies. Light industrial factories and distribution centres stand out now.
There is high demand for well-run student housing in SA that goes beyond bedrooms, desks and basic amenities. The asset class has become a very profitable investment in Australia, where education is considered to be the country’s largest export after mining related goods. For it to find similar success in SA, management teams have to quickly get the knack of working with a couple of thousand beds and students each. Otherwise, they need to employ experts in the field.
After Inkunzi lists, market murmurs are that Cape-based CampusKey could follow. Respublica, majority-owned by Redefine Properties, may list separately in a few years too.