The chemistry of careful choice

Investors looking for some alchemy to spruce up their returns will need to think hard about which chemical share to add to portfolios

OMNIA Share price: R148.12 JSE code: OMN BUY OMNIA, THE DIVERSIFIED

provider of specialised chemicals products and services used in the agriculture, mining and chemical sectors, could be on an upward trajectory if challenges ease up.

In the first half, the company had to deal with extended effects of the drought, the 86-day breakdown at Nitric Acid 2 complex in Sasolburg and stock losses in Australia, which hit the mining and agricultural divisions. But Omnia believes all divisions are set and ready to deliver an improved performance in the second half.

The agriculture division will move into the traditional summer planting season with the drought having receded and increased throughput and overhead recovery expected at the Sasolburg factory.

The mining division continues to improve its product performance, and service levels and the bedding down of the new business model for the chemicals division present interesting opportunities.

This is a stock for investors who like to buy counters that are acquisitive. Omnia is eyeing a pipeline of acquisitions. There’s also a strong global presence. In the first half, group revenues rose by 2.5% to R8bn on the back of mixed results. Modest growth in volume in the agriculture and mining division was offset by lower volumes and higher average prices in the chemicals division.

AECI Share price: R103.30 JSE code: AFE HOLD AECI, THE SPECIALTY

chemicals and explosives company, is well placed to gain from improvements in the sectors where it operates.

The R12.8bn market cap company’s businesses are in mining, water treatment in Africa, agrochemicals in southern Africa and manufacturing in SA. AECI will benefit from providing clean water in a continent were this remains a scarce resource. It clearly views this as a growth area and made a presentation in June to institutional investors about it. In the agrochemicals field in southern Africa the company will benefit from the normalising of rainfall patterns in many areas.

Growth continues to outpace that of GDP in the southern African food industry. AECI’s customer-centric and value-adding specialty chemicals businesses are well positioned to benefit from these improvements.

Investors should hope the company’s performance will be better than in the year to end-December 2016. In that year, revenue rose 1% to R18.5bn, of which 35% was generated outside SA. Profit from operations declined by 22% to R1.3bn.

This is a promising counter to hold on to because management is working hard to turn the company around.

The share price has been down but moved up slightly this year.

AFROX Share price: R18.99 JSE code: AFX SELL AFROX’S FINANCIAL

performance is inextricably linked to SA’s economy; and whether the JSE-listed chemicals firm will do well in the medium term depends on this.

At present things do not look good, as the country has slipped into a technical recession for the first time since 2009. The economy contracted in the first three months of this year. Afrox management agrees that the economic environment will not change any time soon, and its financial performance could be under pressure.

In the 12 months to December 2016 its revenues were “marginally” up 1.2% at R5.5bn, due to the weakness of the economy, the company has said. Nevertheless it says it will continue to look at investment opportunities as and when they become available.

Granted, Afrox has a strong balance sheet to pursue these investments. And it has won many contracts in the past couple of years, culminating in a R1.1bn deal last year to supply gas in Lesotho.

The share price has been hovering between R18.98 and R20.00 since the beginning of this year.

The company’s performance will have to shoot the lights out for investors to have confidence in it and get their money’s worth from it.