Strong diver­si­fi­ca­tion keeps AECI afloat

Finweek English Edition - - KILLER TRADE - BY MOXIMA GAMA

With the min­ing sec­tor cur­rently in de­cline as a re­sult of plum­met­ing com­mod­ity prices and ris­ing costs, AECI’s share price has lost steam. Orig­i­nally reg­is­tered as African Ex­plo­sives and In­dus­tries (AE& I) in 1924, AECI prod­ucts and ser vices in­clude pro­vid­ing blast­ing ex­plo­sives and detonators to the min­ing in­dus­try.

AECI also op­er­ates in spe­cial­ity fi­bres, spe­cial­ity chem­i­cals and prop­erty. This diver­si­fi­ca­tion has helped its per­for­mance, with the bulk sale of prop­erty as­sets in Som­er­set West con­tribut­ing R2.30 to its head­line earn­ings per share of R5.65 for the six months to end June, ref lect­ing a year-on-year in­crease of 45%.

Rev­enue grew 8% t o R8.6bn, with oper­a­tions out­side South Africa con­tribut­ing 36%. Its min­ing so­lu­tions, which in­clude ex­plo­sives and min­ing chem­i­cals, con­trib­uted 59% of rev­enue. The group re­ported an im­prove­ment in vol­umes mined in the plat­inum sec­tor, although it is not yet back to 2013 lev­els, AECI said.

Coal and iron ore vol­umes have been hard­est hit by the col­lapse in com­mod­ity prices, and gold min­ing vol­umes in West Africa re­main un­der pres­sure. How­ever, min­ing ac­tiv­ity in Cen­tral Africa and gold min­ing in Egypt have im­proved, it said.

Ac­tiv­ity in SA’s man­u­fac­tur­ing sec­tor also re­mains sub­dued, while energy con­straints is a ma­jor con­cern. There has also been no im­prove­ment in ex­ports, de­spite the weak rand, AECI said.

The group, which has made sev­eral ac­qui­si­tions in re­cent years, will con­tinue to look for op­por­tu­ni­ties on the con­ti­nent.

It has bought Farm­ers Or­gan­i­sa­tion Li mited, a Malaw­ian c om­pany dis­tribut­ing agro­chem­i­cals, seeds and spray­ing equip­ment on be­half of multi­na­tional pro­duc­ers, for $11m. The ac­qui­si­tion is part of its strat­egy to in­crease its agro­chem­i­cals busi­ness i n Africa t hrough Nu­lan­dis, a n agro­chem­i­cals so­lu­tion provider. The com­pany’s aim is to ac­com­mo­date the grow­ing pres­sure to pro­duce more food on the con­ti­nent.

AECI also bought 100% of South­ern Canned Prod­ucts to in­crease its food ad­di­tives and in­gre­di­ents busi­ness in SA and, ul­ti­mately, the rest of Africa.

Its ex­pan­sion pro­grammes will be key to re­duce its re­liance on the min­ing in­dus­try. But de­spite its strong in­terim re­sults, the cur­rent down­ward con­sol­i­da­tion on t he weekly chart sug­gests sen­ti­ment is some­what ad­verse.

AECI could be top­ping out – it is cur­rently trad­ing side­ways be­tween 13 710c/share and 10 290c/share. The lower tops are in­dica­tive of strained in­vestor con­fi­dence. Down­side be­low 10 290c/share would t r i gger a sel l po­si­tion, and i f t he dashed trend­line fails to hold, AECI could cor­rect to the down­side tar­get at 6 870c/share in the short term (one to six months).

POS­SI­BLE SCE­NARIO:

This bear­ish con­sol­i­da­tion would only end above 13 710c/share, and AECI would form new highs.

AL­TER­NA­TIVE SCE­NARIO:

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