Afrimat, a sustainable investment opportunity

Afrimat Limited (AFT)

Some say small cap stocks are the building blocks (bricks) of the successful enterprises we see today, so what better company to look than Afrimat Limited, who actually make bricks and blocks!

Afrimat started out primarily as a construction materials (aggregates, bricks and blocks, and readymix concrete) company, listing on the Johannesburg Stock Exchange (JSE) in 2006 following the merger of Prima Quarries and the Lancaster Group.

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Fundamentals

Since then, the group has become known for its ability to successfully and strategically position itself by anticipating major changes in the business environment and adjusting accordingly. With the construction boom of the early years severely impeded by the worldwide financial crisis of 2008 and the sudden slowdown in construction activity in South Africa, management had already started rethinking the business’ strategy.

Thanks to Afrimat’s strong operational ability in open-pit mining and its highly entrepreneurial culture, it soon thereafter diversified into industrial minerals (dolomite and lime), with this move building on the group’s proven strengths, and opening up new, more sustainable and profitable markets.

Although Afrimat remained very successful in these markets, the management team became increasingly concerned about the single currency exposure related to locally-priced commodities. This gave rise to an entry into bulk commodity mining with the acquisition of Demaneng iron ore mine, exposing the group to the export market and to US dollar-based revenue.

Afrimat is now a well-diversified mining company with exposure to various markets and currencies, providing an efficient hedge against the individual volatilities.

It has consistently applied a simple business philosophy, which is:

• strategic geographic location;
• unique metallurgy; and
• a structural cost advantage.

Outlook - The group’s entrepreneurial spirit is one of its defining features, with a management team that is willing to exploit opportunities in the market that play to their key strengths as well as those of the group itself. A strong technical team also keeps expertise in-house, ensuring excellent execution.

Over the past few years, Afrimat has become renowned for making and executing highly successful acquisitions. The group’s compound average growth rate in Headline Earnings per Share (HEPS) since 2009, after the financial crisis, to 2020 has been 21.5% per annum.

Afrimat also has a very strong balance sheet, which was debt free in August 2020. Utilising the strength of this position, the group recently announced two noteworthy new acquisitions, acquiring the Coza iron ore mines in the Northern Cape, and is currently in the process of acquiring Unicorn Capital Partners to obtain ownership of the Nkomati Anthracite mine. The latter acquisition will bolster the group’s bulk commodities strategy significantly, as well as strengthen its diversification.

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Informed decisions

Afrimat has been a constant performer and has rewarded its shareholders consistently with dividends, not missing a single dividend since its inception.

The group’s obligations extend further than its shareholders though, and Afrimat is committed to empowering employees by building capacity and skills, being a firm believer in the fact that a well-trained, informed and skilled workforce will be personally satisfied and motivated, and so choose to stay with the group. This has led to a deepening skills pool and driven both productivity and profitability.

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Afrimat also has a genuine ambition around transformation that permeates the entire organization, understanding transformation to be critical for the sustainability of the business and to the future of South Africa. Black ownership currently totals 32,6% in line with Mining Charter requirements.

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Sources: EasyResearch, Afrimat Limited, Decusatio