Brick trick

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

THE LIST­ING of this ma­te­ri­als sup­plier last Novem­ber was both spec­tac­u­lar and un­usual. De­but price was 805c/share, a large pre­mium to the 500c/share pre-list­ing private place­ment. At 965c/share last week, Afrimat’s share price keeps rock­et­ing.

Un­usual in that Afrimat is­sued a cau­tion­ary an­nounce­ment on the same day it listed. That un­rav­elled ear­lier this month when the com­pany, which sup­plies the build­ing and con­struc­tion in­dus­try, con­firmed it had bought Malans quar­ries in the West­ern Cape for R125m.

The ac­qui­si­tion is in line with Afrimat’s strat­egy to source raw ma­te­ri­als from within the group. It also raised money to help fund the ac­qui­si­tion – R60m through the is­sue of 6,5m shares to in­sti­tu­tions, one an em­pow­er­ment share­holder to keep the BEE profile of the com­pany at 25,1%. Afrimat also in­di­cated that fur­ther ac­qui­si­tions were be­ing con­sid­ered.

It’s a rol­lick­ing start for a small cap share that’s placed in the right cor­ner of the boom­ing con­struc­tion in­dus­try. The large build­ing and con­struc­tion groups are very ex­pen­sive (though Afrimat is too) and earn­ings can be volatile if one or two large con­tracts fall through. Sup­pli­ers are more stable and still en­joy the ben­e­fits.

But such rapid growth and what looks like an ag­gres­sive ac­qui­si­tion strat­egy also make in­vestors ner­vous. That’s un­der­stand­able, but while this is a new list­ing it comes from the merger of two es­tab­lished com­pa­nies – Lan­caster and Prima – that both have a 45-year his­tory in the Cape and en­joy dom­i­nant po­si­tions on the East Coast and in­land, as well as Namibia.

Scep­tics might also ques­tion the longer-term growth of a small com­pany up against a large and dom­i­nant brick man­u­fac­turer like Coro­brik. How­ever, Afrimat has a di­verse prod­uct range, in­clud­ing ag­gre­gates, ready-made con­crete, con­crete blocks and bricks. And the com­pany is ex­tend­ing its ge­o­graph­i­cal pres­ence, even quar­ry­ing an area at Kom­metjie in the West­ern Cape, which we’re sure has caught the at­ten­tion of our writer who lives on that re­mote part of the penin­sula.

But the prob­lem is how do you jus­tify pay­ing a his­toric p:e mul­ti­ple in the up­per twen­ties? Barnard Ja­cobs Mel­let’s Private Client Ser­vices, which also likes the com­pany, sug­gests wait­ing for “a pull­back or a re-rat­ing in the sec­tor”. That’s sen­si­ble ad­vice, but it might be years be­fore the sec­tor re-rates. More spec­u­la­tive in­vestors could con­sider get­ting in now and en­joy­ing the ride.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.