Strong re­sis­tance

Finweek English Edition - - INVESTMENT -

Om­nia has surged over the years from lev­els around 3 700c/share to the cur­rent lev­els around 22 800c/ share, which means that those in­vestors who bought the stock in 2009 have hap­pily gained more than a 500% re­turn. Om­nia Hold­ings is a hold­ing com­pany for a group of com­pa­nies that pro­duce and sup­ply fer­tiliser to the agri­cul­tural in­dus­try, ex­plo­sives to the min­ing in­dus­try and in­dus­trial chemical prod­ucts.

Once a lit­tle mouse in a very big field, Om­nia now com­petes with big gi­ants like Sa­sol and AECI, even out­per­form­ing its clos­est com­peti­tor, AECI, by a wide mar­gin over the past five years. Its ex­pan­sion strat­egy am­pli­fied into the rest of Africa when is­sues arose in the South African un­der­ground min­ing mar­ket. The com­pany con­tin­ued to en­hance its sup­ply chains to African mar­kets, which have a large ex­po­sure to open­cast min­ing. Om­nia serves the min­ing in­dus­try through its sub­sidiaries BME Min­ing and Protea Min­ing Chem­i­cals, which pro­duce elec­tronic det­o­na­tors and blended bulk ex­plo­sives for­mu­la­tions for the open­cast min­ing in­dus­try and pack­aged ex­plo­sives for un­der­ground min­ing.

Not for­get­ting to men­tion its im­pres­sive earn­ings over the past cou­ple of years; prof­its for the year ended June 2013 hit record highs of R880m (up by 40%), the op­er­at­ing mar­gin rose from 8.1% to 9.1%, EPS was up by 40% to 1 332c/share and the to­tal div­i­dend for the year was up 50% to 420c/ share. A fi­nal div­i­dend of 270c/share was de­clared within that year. But al­though Om­nia is an ex­tremely at­trac­tive share based on all these facts, I would not in­vest in it at cur­rent lev­els. POS­SI­BLE SCE­NARIO: Om­nia is en­coun­ter­ing strong re­sis­tance at 23 750c/ share, and note that its rel­a­tive strength in­dex (RSI) has been neg­a­tively di­verg­ing since May 2013, which means in­vestors have been grad­u­ally sell­ing on ev­ery uptick to re­duce their ex­po­sure and pro­tect them­selves from an ag­gres­sive sell­off. Also, Om­nia is trad­ing well within the third and fi­nal phase of its pri­mary bull trend and the monthly RSI is com- ing off an over­bought po­si­tion. Fail­ure to trade above 23 750c/share, to­gether with the bear­ish RSI spells cau­tion. Downside be­low 22 325c/share would be a sign to re­duce long po­si­tions, and then sell be­low 20 250c/share. Breach­ing that sup­port level would mark the end of the third phase and Om­nia could grad­u­ally cor­rect to ei­ther the 16 315c/share or 13 995c/ share sup­port level. AL­TER­NA­TIVE SCE­NARIO: Om­nia could surge fur­ther through the 23 750c/ share all-time high, but that would in­crease the chances of an even steeper and more rapid pull-back when buy­ers run out of steam.

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