Pleas­ant Afrox trad­ing up­date

EPS growth of 39 to 49%

The Star Early Edition - - COMPANIES - Sandile Mchunu

JSE-LISTED African Oxy­gen Lim­ited (Afrox) yes­ter­day sur­prised the mar­ket with a trad­ing up­date in which it said its earn­ings per share (EPS) were ex­pected to grow by be­tween 39 per­cent and 49 per­cent for the year to end De­cem­ber.

The group said the in­crease in EPS was largely due to im­proved mar­gins from op­er­a­tional ef­fi­cien­cies and a re­duc­tion in fixed costs as well as a set­tled lit­i­ga­tion case.

The share price ral­lied yes­ter­day on the JSE fol­low­ing the re­lease of the up­date and gained 7.24 per­cent to trade at R19.99 per share.

How­ever, it closed at R19.45 at the end of the day. The ex­pected earn­ings per share of be­tween 186 cents per share and 199c per share would be bet­ter than the 134c per share re­ported in Fe­bru­ary 2016.

The group has ben­e­fited from the lead­er­ship of Schalk Venter, who was ap­pointed in the first half of 2015. He was en­gaged in very ag­gres­sive re­struc­tur­ing ef­forts to cut costs dur­ing the past year and the re­sults are start­ing to pay off.

In Novem­ber last year Afrox set­tled lit­i­ga­tion in­volv­ing ArcelorMit­tal South Africa (Amsa). The two com­pa­nies reached an agree­ment re­gard­ing the early ter­mi­na­tion of the sup­ply con­tracts dis­pute which has re­sulted in a full and fi­nal set­tle­ment of all le­gal pro­ceed­ings be­tween the par­ties. Un­der the agree­ment, Amsa set­tled Afrox’s claims in a num­ber of tranches to the to­tal amount of R165 mil­lion.

The group also ex­pects its head­line earn­ings per share to im­prove on last year’s num­bers. The head­line earn­ings per share is ex­pected to be be­tween 31 per­cent and 41 per­cent higher to be­tween 182c and 196c per share, up from 139c per share as com­pared to the pre­vi­ous cor­re­spond­ing pe­riod.

Wil­helm Hert­zog, an an­a­lyst and port­fo­lio man­ager at Re­gard­ing Cap­i­tal Mar­kets, said the trad ing up­date was bet­ter than what the mar­ket ex­pected.

“The com­pany has en­gaged in some con­certed ef­forts to boost pro­duc­tiv­ity and in­crease earn­ings, and has sur­prised the mar­ket in the ex­tent of the re­cov­ery in prof­itabil­ity dur­ing the past year. This can also be seen in the share price re­ac­tion, which has been up strongly on the re­lease of trad­ing up­dates and fi­nan­cial re­sults for the past six months,” said Hert­zog.

The com­pany will re­lease the fi­nan­cial re­sults on or around 22 Fe­bru­ary.

PHOTO: HENK KRUGER

Afrox is ex­pect­ing earn­ings per share to be up by be­tween 39 per­cent and 49 per­cent for the year to end De­cem­ber. The im­prove­ment is at­trib­uted to im­proved mar­gins from op­er­a­tional ef­fi­cien­cies and a re­duc­tion in fixed costs.

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