Omnia Hold­ings

Finweek English Edition - - INVESTMENT -

The re­source sec­tor in South Africa has come un­der in­creas­ing pres­sure in re­cent months on the back of con­cerns around a num­ber of is­sues, in­clud­ing weak global eco­nomic ac­tiv­ity and hence f lag­ging de­mand. In ad­di­tion, struc­tural is­sues in the min­ing in­dus­try sur­round­ing strike ac­tion and the re­sul­tant inf la­tion­ary pres­sures that this will bring, only add to the bur­den of in­creas­ing power costs and hav­ing to mine deeper into the earth. How­ever, this sec­tor is not re­stricted to min­ing f irms, but also ex­tends to agri­cul­ture and chem­i­cals. Omnia is a stock that has ex­po­sure to the broader re­sources in­dus­try and has a com­mend­able track record for in­vestors. Cer­tainly, this busi­ness is highly ex­posed to min­ing ac­tiv­i­ties, with half of op­er­at­ing profit coming from this seg­ment, but agri­cul­ture con­trib­utes al­most 40% and chem­i­cals the re­main­ing 10%.

Two years ago the com­pany raised R1bn to build a sec­ond nitric acid plant that would not only add sig­nif­i­cantly to its pro­duc­tion ca­pac­ity, but would also con­trib­ute to im­proved economies of scale and in turn, bet­ter mar­gins. Although this deal was a large one for the f irm at the time, it has been im­ple­mented ef­fec­tively, ev­i­denced in part by the 52% rise in earn­ings for the re­cent f inan­cial year, while the div­i­dend was in­creased by a sim­i­lar amount. How­ever, t he y i eld i s only a “sat­is­fac­tory” 2%. Omnia’s bal­ance sheet is sound, with a debt to eq­uity ra­tio of 19% fol­low­ing the cap­i­tal rais­ing of 2010, and f inan­cial qual­ity met­rics point to a well-run f irm.

Omnia re­mains South Africa-cen­tric, but is in­creas­ingly do­ing busi­ness out­side of our bor­ders, with a quar­ter of rev­enue be­ing gen­er­ated in Africa. The com­pany’s agri­cul­tural ex­per­tise f its neatly with Africa’s grow­ing need to pro­duce more soft com­modi­ties (food), and Africa cer­tainly is a key mar­ket for min­ing pro­duc­tion. At the last set of re­sults, it was pleas­ing to see min­ing vol­ume in­creased, de­spite the broader slow-down in min­ing ac­tiv­ity. This in­fers that Omnia is gain­ing mar­ket share, which will fur­ther sup­port earn­ings go­ing for­ward.

Omnia has not e x pe­ri­enced t he large sell-offs wit­nessed by some of the other min­ing stocks, hence it could be ar­gued that there is bet­ter value to be found else­where in the sec­tor. How­ever, Omnia still dis­plays sound value mul­ti­ples, which we ex­pect to be sup­ported by the di­verse earn­ings base and grow­ing mar­ket share. In ad­di­tion, the key op­er­at­ing ar­eas gen­er­ally per­form well in a counter-cycli­cal fash­ion, and we ex­pect the chem­i­cals busi­ness to con­trib­ute strongly when the man­u­fac­tur­ing en­vi­ron­ment im­proves.

Div­i­dends

SOURCE: McGre­gor BFA

An­drew Newell, Head of Busi­ness Devel­op­ment, Can­non As­set Man­agers

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