Keep an eye on the cash
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.