Strong diversification keeps AECI afloat
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).
This bearish consolidation would only end above 13 710c/share, and AECI would form new highs.