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Afrimat share analysis

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31 Aug 2012 After reading Alec Hogg writing about Afrimat's competitive moat, I bought some at R4.60/share on the 12th of January 2012. Yesterday there was an announcement of a share buyback which boosted its price a bit, and gave me the opportunity to sell it today for R6.39 on the 31st August 2012, which is around full value for me (it doesn't mean that's the case for you, as (1) I may be wrong and (2) the value of shares depend on your tax situation & other stuff). Our waltz together was rather short, but good, and I look forward to buying it again one day when there's a greater margin of safety. In the meantime I'm struggling to find good buying opportunities - even good old Combined Motor Holdings which presented some excellent buying opportunities over the last couple of months, has moved out of my buying range. If any readers have got ideas on shares showing value, I'd appreciate their feedback.

Afrimat's results to Feb 2012

On 10 May 2012 Afrimat announced their annual results to 29 Feb 2012, which were marginally better than I'd imagined after the earlier trading statement (but maybe not as good as Mr Market was hoping as it was down 1% on the news...although later in the day it recovered). Some notes:


I could be completely wrong, but looking in the rear-view mirror I estimate the value of Afrimat as some R6.30 to R6.60 a share. In doing this valuation I:

Afrimat does not have a large exposure to Sanral, it was 6% of turnover in the 2012 financial year, but their troubles will have a commensurate impact.

Afrimat mining photo

About Afrimat

Afrimat rocks! They are an open pit mining company, who provide construction & industrial materials. When I saw the consistent profit this company has been generating, the solid deals its management have closed in the last 2 years (never underrate the importance of a good jockey), that it has something of a competitive moat (in that it's difficult to open quarries), that it's geographically diversified across South Africa & most importantly that it was trading at a discount to its intrinsic value; I went ahead and bought some shares at R4.60 on the 12th January 2012. A younger me might not have traded, as the price had just gone up by 7%. However, Afrimat is trading at R5.80/share, so I shouldn't complain too much.

In the short-term my biggest concern is a deterioration in the macro-economy, possibly as a result of continuing deleveraging (I hear US Republicans calling for an end to Obama's "out of control spending") or a slowdown in the Chinese economy. In the longer term there is a risk of a change in the materials which are used for building.

Mining & Aggregates

Extracts dolomite & aggregates through open cast mining, beneficiates these raw materials into products for the metallurgical industry and into aggregates for large-scale civil engineering & infrastructure projects. Products include stone, gravel & sand. It also provides professionally contracted blasting & drilling services. No single project accumulates to more than 4% of revenue in any financial year.

Afrimat's proprietary commercial quarries also supply the majority of aggregates for the Concrete Products & Readymix divisions.

Concrete Products

The Blocks & Bricks division operates mainly in the rural areas.

Readymix is supplied from Afrimat's plants at Dundee, Harrismith, Qwa Qwa, Ulundi & Vryheid. Supplies concrete to infrastructure & civil-engineering projects.

Industrial Minerals. The Glen Douglas open pit mine is in Vereeniging, and produces 1.2m tonnes p.a. of metallurgical dolomite, commercial mining & aggregates (largest segment served is the Readymix industry, but also the concrete products & brick making industries) & agricultural lime products (provided to the agricultural industry). It's well placed to supply the southern parts of Johannesburg (like Arcelor-Mittal) & the northern Free State. The mine has sufficient reserves for 30 years. A rail siding with a mechanical loading facility enables cheaper transport costs. The mine has a low water demand.

Contracting International. Afrimat employs highly experienced blasters, and have a fleet of hydraulic drill rigs. Also bid preparation & contractual services as well as crushing & screening.

Concrete products & Readymix benefit from government housing projects.

Sector volatility

The infrastructure spending sector tends to be erratic, so one would expect profitability to be erratic. However, infrastructure expenditure is almost certain to happen if one looks long enough down the cycle. Given the sector they're operating in, I'm impressed that they haven't experienced more volatility.







Operating profit






Afrimat "has read the construction cycle well, having been in residential building supplies at the time of listing, then moving to infrastructure with Kusile and now to metallurgical dolomite for the steel industry. It has moved from construction to the metals industry, which is a more stable environment with annuity flows from that." Janine Weilbach


BEE shareholders & Afrimat's black employees hold 26% of Afrimat's issued shares.

Tangible assets

Net tangible assets per share of R3.63 provides a value underpin.


Both the purchase of the Glen Douglas mine as well as Clinker supplies seem to be good deals (links to analysis by Keith McLachlan) for Afrimat, and inspire confidence in the ability of management to add to shareholder value.

March 2012 : Clinker Supplies

The purchase of the Clinker Group became unconditional on 1 March 2012. Purchased 100% of SA Block & its 100% subsidiary Clinker Supplies for R123.5m. The Clinker Group currently returns profit after tax of approximately R30.0 million per annum which would equate to a return on equity on Afrimat`s R123.5 million investment of approximately 24% per annum. The Purchase Price will be settled by a combination of cash in the amount of R95 million and Afrimat ordinary shares, currently held as treasury shares to the value of R28.5 million. The number of Afrimat ordinary shares will be determined with reference to the 30 trading days Volume Weighted Average Price of Afrimat`s ordinary shares on 9 December 2011 being R4,35 per share.

The Clinker Group, is the pioneer and leading processor of clinker for supply mainly to the concrete manufacturing industry. The group also manufactures its own concrete products from clinker material. The Group`s activities include the extraction of clinker raw material from various stock piles and the processing thereof into products of various specifications primarily for use in the concrete manufacturing and civil construction industries. Key operations are located close to Vereeniging and Sasolburg with support services based in Alrode. It is situated close to the recently acquired and highly successful Glen Douglas Mine, creating exciting opportunities for synergy. The processing and manufacturing plants are well established and maintained. The Clinker Group supplies customers in the wider Gauteng market and adjacent northern provinces. Based on current sales volumes, sufficient clinker raw material resources have been secured under contract for the next ten years - despite a shorter life than that of the average aggregate mine, the expected financial returns of this investment are attractive. The concept of utilising clinker in concrete manufactured products was developed by the late Mr. J.B. Pfeffer in the 1950`s. The Clinker Group is currently managed by his son Karl Pfeffer, supported by a strong and loyal management team and workforce.

2011 : Glen Douglas dolomite mine

A metallurgical dolomite mine situated south of Joburg. The expansion of this quarry is expected to make it one of the biggest of Afrimat's. The life of the mine is estimated at more than 30 years.

2010 : Blue Platinum quarry
2009 : Sunshine Crushers
2008 : Malans Group & Denver Quarries
2008 : 2 quarries & a concrete brick & block factory in KZN

Competitive moat

To quote Alec Hogg on Afrimat's competitive moat: " I decided after reading that there is an undiscovered company on the JSE that’s got a fantastic moat, and its name is Afrimat. Afrimat has got something like 27 quarries around the country – and that is a moat because no municipality nowadays wants to grant a licence for a quarry. The consequence is, if you happen to be building roads or whatever else it is where you need building materials,  aggregates as they call them, you haven't really got much choice of where to go, because there aren't that many quarries around. And these guys have done very well over the past few years."

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