Keep an eye on the cash

Finweek English Edition - - Companies & Markets - VIC DE KLERK

THE LAT­EST FALL in Afrimat’s share price in­di­cates the com­pany may soon have to is­sue an un­pleas­ant trad­ing up­date. With a mar­ket value of around R300m Afrimat is a sup­plier of con­crete (ag­gre­gate and readymix) to the build­ing in­dus­try and one of the pop­u­lar new list­ings of a few years ago.

Its year-end is 28 Fe­bru­ary 2009. Its lat­est share price of only 200c is al­ready a warn­ing the group’s profit for the 12 months can only be a frac­tion of the 70c/share profit achieved last year. For its half-year to Au­gust 2008 things had al­ready started go­ing wrong. Afrimat could still re­turn a healthy rise in in­come from R281m to R328m, but op­er­at­ing profit was down by 22%. How­ever, its un-au­dited earn­ings per share for the six months were still 24c/share.

But cash flow for the pe­riod was poor – and it’s cash flow that in­vestors look at th­ese days. Cash at the end of each of the three lat­est six-month pe­ri­ods start­ing from 30 Au­gust 2007 fell from R71m to R37m and fi­nally to R18m at end-Au­gust 2008.

In­vestors are quite right to be­lieve com­pa­nies such as Afrimat must ben­e­fit over the long term from all SA’s in­fra­struc­ture spending. Afrimat’s net real as­set value at end-Au­gust 2008 was a very sat­is­fac­tory 270c/share. It’s un­likely the weak­en­ing in its profit over the past six months will erode too much of that as­set value. In fact, if there’s ac­tu­ally been a profit over its lat­est six months and cash hasn’t fallen to less than R10m Afrimat may be one of the small fry in the construction in­dus­try whose pop­u­lar­ity re­cov­ers quickly. Keep an eye on the cash.

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