SOLID COM­PANY

Con­struc­tion is a tough in­dus­try, but Afrimat is one se­ri­ous per­former

The Star Early Edition - - BUSINESS REPORT - Amelia Mor­gen­rood,

CON­STRUC­TION in South Africa is tough and in­fra­struc­ture spend from gov­ern­ment is low. Pri­vate fixed in­vest­ment has been in a down­ward cy­cle for many years and busi­ness con­fi­dence is dire.

Spend­ing is mostly fo­cused on smaller projects and these are awarded to un­listed, mostly un­known, black-em­pow­ered com­pa­nies.

There is one area where money is still spent and that is on roads, and there seems to be a lot of ac­tiv­ity in this sec­tor.

The or­der book for road con­struc­tion and road re­ha­bil­i­ta­tion of even the big­ger listed com­pa­nies is steady.

Ac­cord­ing to the Safcec State of the In­dus­try re­port, road con­struc­tion contributed al­most 48 per­cent of in­dus­try rev­enue in the first quar­ter of this year. The Safcec num­bers also show a marked in­crease in earth­work ac­tiv­ity from less than oneper­cent of in­dus­try turnover to 5.5per­cent.

Ben­e­fited

The strong road con­struc­tion mar­ket has ben­e­fited con­struc­tion ma­te­rial sup­pli­ers and com­pa­nies such as Afrimat con­tinue to grow. Afrimat is listed in the con­struc­tion and build­ing sec­tor, and is a black-em­pow­ered, di­verse com­pany sup­ply­ing ma­te­ri­als, re­sources and con­tract­ing ser­vices to in­dus­tries such as min­ing, con­struc­tion, road and rail.

Backed by more than 50 years’ ex­pe­ri­ence, Afrimat sup­plies a broad range of ma­te­ri­als, rang­ing from min­ing and ag­gre­gates, con­crete prod­ucts (bricks, blocks and pav­ing) to ready-mix, as well as in­dus­trial min­er­als. The com­pany op­er­ates through five key di­vi­sions: Min­ing & Ag­gre­gates, Con­crete Prod­ucts, Readymix and In­dus­trial Min­er­als.

The com­pany’s his­tory stems back to the mid-1960s, with the merger of Prima Quar­ries in the West­ern Cape and Lan­caster Group in KwaZulu-Na­tal, and they listed on the JSE in 2006.

The group has man­aged to buy great busi­nesses such as Exarro’s Gen Dou­glas (for a steal!), SA Block, SA Clinker and Cape Lime. In ad­di­tion to sup­ply­ing ma­te­ri­als, Afrimat has a strong pres­ence in con­tract­ing ser­vices such as drilling, blast­ing, mo­bile crush­ing and screen­ing.

They also ser­vice ma­jor in­fra­struc­ture and con­struc­tion projects for a range of en­ter­prises, from large pub­lic and gov­ern­ment-owned en­ti­ties to small pri­vate sec­tor clients.

Afrimat is es­tab­lish­ing quar­ries in Mozam­bique and are plan­ning to buy into the rest of Africa.

Afrimat also boasts a low staff turnover, which has re­sulted in a deep skills pool, while staff transformation and com­mu­nity up­lift­ment are in­te­gral to the com­pany’s suc­cess.

In Septem­ber 2016, Patrice Mot­sepe’s African Rain­bow Cap­i­tal bought an 18.4per­cent stake and agreed to be locked in for at least four years. They are a strate­gic long-term in­vestor with no pre­de­fined exit strat­egy.

Afrimat’s chief ex­ec­u­tive An­dries van Heer­den said that “Afrimat is of the view that this will cre­ate a long-term and sus­tain­able BEE part­ner with cer­tainty around share­hold­ing, which will build fur­ther value for Afrimat. ARC has also shown a will­ing­ness in want­ing to work with Afrimat on our pro­posed growth strat­egy.”

Prospects

In May, Afrimat pub­lished full year re­sults to Fe­bru­ary 2017. Head­line earn­ings per share in­creased by 25.4 per­cent to 196.4 cents. The un­de­mand­ing price/earn­ings ra­tio of 12.7 make this com­pany an at­trac­tive propo­si­tion.

Al­though man­age­ment in­di­cated at the re­cent AGM that the start to their new fi­nan­cial year was chal­leng­ing and that they will not be able to sus­tain pre­vi­ous growth, the cur­rent val­u­a­tion seems to be good value for money, es­pe­cially since the share price dropped from R30 less than two months ago.

They ex­pect earn­ings to be pos­i­tive and ahead of their peers, but not as high as the mar­ket came to ex­pect of them.

For many years they have main­tained earn­ings growth of more than 20per­cent a year and even if this comes down to 10 per­cent or to 15 per­cent, the share is still at­trac­tive be­low R25. The com­pany has built up a di­ver­si­fied port­fo­lio, which acts as a risk hedge for share­hold­ers.

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