Afrimat (AFT) – Diversification bearing fruit

Afrimat faced tough conditions in 1H23 but performed well under the circumstances. The Bulk Commodities segment produced double-digit growth once again, albeit lower than the >30% growth achieved in each year prior.

Each division faced headwinds over the period. The Construction Materials segment battled a weak construction market due to the lack of infrastructure expenditure and SOEs underperforming. However, residential construction activity has improved, which Afrimat stands to benefit from. The Industrial Minerals segment produced weak results due to a depressed market for its products, however, exports of its lime-based products and the addition of the Agri Lime business provide potential for growth.

The strong performance in the Bulk Commodities segment is attributable to Jenkins and Nkomati increasing their production and sales volumes. Demaneng suffered an average iron ore price c. 27% lower than 1H22 as well as continued Transnet inefficiencies along the iron ore corridor. A key to its success will be its ability to increase its sales volumes as realised prices remain low. A concern for the segment is the lower offtake from Jenkins coupled with the lower contract price. The c. 45% OPM may taper over 2H23.

Afrimat’s diversification strategy is beginning to bear fruit through the addition of Glenover and the various products it will be producing and selling within the next two years. There is high demand for agricultural products and, due to setbacks faced by competitors, Afrimat stands to gain market share and grow quickly. At steady state, the Phase 1 products can produce a higher operating profit than Demaneng and Jenkins currently. Along with increased volumes at Nkomati, future iron ore underperformance could be erased by Afrimat’s diversified offering