Next a decade of intense expense with meagre returns and a bloated, personal debt-laden stability sheet, I was one of the sceptics in 2019 who observed Omnia’s R2 billion legal rights issue as affirmation that it had shed its way as a diversified chemicals group.
Commonly, issuing equity to pay out off personal debt is a incredibly high-priced way of producing momentary gearing into everlasting dilution.
Similarly, minimal returning belongings hardly ever grow to be higher returning assets when degeared (just one of the explanations you should really use return on property as a top quality evaluate for analysing companies and not just return on fairness).
Add to this the jaundiced commodities outlook of a few several years in the past (indeed, hard to think about, but there was a time period not so prolonged in the past when commodities were being untouchable) and the gradual-motion crash that is industrial South Africa (many thanks, government!), and 1 begins to have an understanding of why Omnia had these types of a bleak outlook back then.
Yet 3 a long time later, with a share cost that has mainly tripled, I’ve been established erroneous about Omnia. Very wrong indeed.
With its FY22 final results, Omnia reported revenue that has risen by 30% calendar year on year, margins that have expanded, and earnings from continuing operations that have just about doubled – whilst headline earnings per share has grown by 86% 12 months on yr, putting the inventory on a price tag-earnings numerous of 11.2 moments.
The group’s equilibrium sheet is not just ungeared but has surplus dollars.
Despite Omnia strategically investing additional into important raw product inputs (a superior shift in a environment struggling with provide chain disruptions and shortages), the group’s dollars generation has authorized management to declare each an regular dividend of 275 cents for every share (FY21: 200cps) and a exclusive dividend of 525cps (FY21: 400cps).
This puts the stock on a total dividend produce of around 10% (this is a dividend produce of 3.7% when only thinking of the everyday dividend).
When Omnia owns a substances company, which is significantly on the lookout non-core, the bulk of margin and base-line will come out of its agricultural (fertiliser) and mining (explosives) organizations.
These core corporations use connected uncooked inputs (which it can source both domestically as a result of a pipeline or import by means of rail sidings at Richard’s Bay) to produce fertiliser for farming and explosives for mining.
Read: Omnia sees Africa growing farm input guidance amid foodstuff safety fears
Omnia’s agriculture phase observed strong domestic progress (revenue up 60%) with output efficiencies and the functioning leverage of its preset producing cost-foundation pushing working profits up 185%. Internationally, while, a mounted price tag contract in Zambia harm the team and, excluding Zimbabwe, earnings and profits were flat.
Mining segment flying
The group’s mining section executed equally, with the domestic functions flying (earnings up 43% and operating profit up 164%) and worldwide functions supplementing this (profits up 17% and operating revenue up 30%). Prospective customers here are on the lookout wonderful for the coming yr.
The two these segments benefitted from the tailwinds established by the conflict in Ukraine as comfortable and tough commodity place marketplaces boomed, and farmers and miners sought substitute suppliers in critical inputs into their procedures.
In their results presentation, Omnia’s administration reiterated their bullish see on the group’s potential clients. Not just are there additional efficiencies that can be exploited and spare plant capability that can be made use of, but the group’s internet cash stability sheet delivers them huge cash allocation optionality (both of those organically and acquisitively).
Curiously, management reiterated their perspective that they see Omnia’s best money construction as having a internet debt of circa 1 to 1.5x Ebitda (earnings prior to curiosity, tax, depreciation and amortisation).
Assuming the recent dividends are paid out and internet debt of 1.5x Ebitda, this implies that Omnia currently has surplus funds of R2.15 billion (R2.3 billion Ebitda x 1.5 = R3.45 billion R3.45 billion considerably less R1.3 billion in present-day dividends = R2.15 billion ‘spare’ harmony sheet ability) or around 1 271cps for every Omnia share.
If Omnia paid this surplus money out straight away, this (alone) would be a further dividend yield of about 16%.
Administration teases at likely acquisitions far too as they communicate about a “potential new vertical”.
One particular point is specific, Omnia is a circumstance study in unlocking worth from its 2019 legal rights concern and subsequent turnaround.
Nicely performed to people who adopted their rights and have held onto the share considering that then!
With the tailwinds in the agricultural and mining sectors, Omnia truly does look to be made of the appropriate substances.
Hear to Fifi Peters’s job interview with Omnia CEO Seelan Gobalsamy (or examine the transcript listed here):
Keith McLachlan is expenditure officer at Integral Asset Administration.
* McLachlan and some of Integral Asset Management’s portfolios may perhaps maintain shares in Omnia.