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'If they can beat the cost of capital...'
November 30, 2009
Asha Speckman
Omnia Holdings would have to make several major acquisitions as early as late next year should it wish to achieve its shareholder prescribed five-year target despite taking a huge knock in the past six months according to analysts.
The company’s board had set a real growth rate of 8 percent a year for the next five years off an earnings base of R383 million as from April this year.
Yesterday the diversified specialist chemicals company servicing the chemicals, mining agriculture sectors announced a 22 percent drop to R4.2 billion in revenue for the six months ended September. However, It anticipated a return to full return to full profitability next year when fertilizer orders return to normal levels. It was also advancing on several strategic acquisitions particularly the small acquisition of Petroleum Fine Product by its Protea Chemicals division effective from today (subs: 1 December).
David Lerche, an analyst at Avior Research said, ”If management is to reach its five-year target, by late 2010 or at some stage in 2011 they will have had to make big acquisitions... if they can beat the cost of capital... they have proven that they can.”
Omnia lost R99 million compared to the profit of R373 million during the same period last year as well as a loss per share of 218.2 cents in contrast to R839 cents profit last year. Its agricultural division suffered heavily reporting an operating loss of R218 million . The group incurred stock write-downs of R350 million. No dividend was declared.
Lerche said this half was worse than expected despite good management. “It is nearly impossible to manage businesses where you have massive inputs. If you exclude the stock write-down they’ve had a reasonable half. It’s part of the nature of any business in the commodity space. They are at the whim of the commodities price. At the same time people did not expect that rand to strengthen from R9.50 in March to R7.50 by the end of September.”
Kholofelo Maele, a chemicals analyst at Frost & Sullivan, said the group had already made “smart acquisitions” to increase its strength in the market especially in technology development. Maele said in sub-Saharan Africa the mining explosives and speciality chemicals markets driven by increased public and private infrastructure investments presented the highest growth opportunities for Omnia. “ The challenges that the company faces are likely to be temporary... but it is too soon to tell whether the company will be able to reach its target based on the current acquisitions alone,” she told Business Report.
Looking forward, Rod Humphris, managing director of Omnia, said “There are signs that conditions are improving slowly . The group is investigating several value enhancing growth projects especially in the critical areas of alternative energy and water purification.”
Its feasibility study of a second nitric plant would be completed soon and would address the shortage of ammonium nitrate - a critical raw material in the production of fertilizer and explosives and prepare the group for the expected growth in mining and agriculture in southern Africa.
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