Buy the prop­erty

Finweek English Edition - - Companies & Markets - SIKONATHI MANTSHANTSHA

AECI LIM­ITED IN­VESTORS LOOKING TO GRAB bar­gains of­fered by the re­cent dev­as­ta­tion in eq­uity mar­kets won’t see any short­age of candidates. In fact, the bluest of blue chip shares can still be bought cheaply on the JSE. One of those that can be added to power up a port­fo­lio is chem­i­cals and ex­plo­sives sup­plier AECI, al­though it can’t ex­actly be called a bar­gain in the cur­rent con­text.

Head­line earn­ings per share of 325c at the in­terim pe­riod give AECI an es­ti­mated for­ward earn­ings mul­ti­ple of about 10 times (on the price of 6100c/share) at the full re­port­ing pe­riod in De­cem­ber. Its June HEPS fig­ure was 35% higher than the last cor­re­spond­ing num­ber. That was achieved on rev­enue growth of 43%, which AECI at­tributes to im­proved per­for­mance by all its busi­ness units. Par­tic­u­larly im­pres­sive was its chem­i­cal ser­vices (Chem­serve), the big­gest unit with a 68% con­tri­bu­tion to group rev­enue, which de­liv­ered a 53% im­prove­ment to its op­er­at­ing profit.

AECI’s main busi­ness is to sup­ply the min­ing, in­dus­trial and agri­cul­tural sec­tors with chem­i­cals and ex­plo­sives. While the cur­rent mar­ket cli­mate might pro­vide more gloom for the min­ing sec­tor, agri­cul­ture is set to ben­e­fit from cur­rent high food prices, and more farm­ers are bound to plant more and there­fore use more chem­i­cals. Though SA’s min­ing sec­tor has shrunk by about 14% so far this year, im­prov­ing profit mar­gins at AECI are set to com­pen­sate for the de­creased de­mand from min­ing. Group mar­gins re­mained steady at 9,3% in June (Chem­serve’s im­proved to 10%).

Value in­vestors might want to climb in at the cur­rent lev­els of 6100c/share and en­joy the ride while hop­ing for a sep­a­rate list­ing of the prop­erty port­fo­lio in the fu­ture. Stan­dard Bank and McGre­gor BFA’s an­a­lysts re­spec­tively ex­pect AECI to bring in HEPS of 593c and 600c in the year to De­cem­ber. The fol­low­ing year would see those climb­ing to 790c/share then 994c/ share by 2010. Those would have paid for the prop­erty port­fo­lio if bought now.


Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.