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Omnia share analysis |
2011-11-22 Omnia owns companies which manufacture & distribute fertilizers, mining explosives & industrial chemicals - the companies are based in SA, Ghana, Kenya, Mauritius, Tanzania, Zambia & Zimbabwe. Omnia was founded in 1950 and listed on the JSE in 1980.
AECI makes commercial explosives & accessories, polyvinyl chloride, low density polyethelene, synthetic fibers, industrial chemicals, speciality chemicals & fertilizers. AECI also operates in the paint & plastics conversion industries.
Maize production levels in South Africa, affects revenue levels.
The ratio between the international price of urea, a widely traded fertilizer commodity, & that of ammonia, the raw material for the nitrogen component in fertilizers, affects margins ( Urea is formulated by a reaction between anhydrous ammonia and carbon dioxide at high temperature and pressure).
Dollar price of fertilizers and the Rand/$ exchange rate affects sales prices of fertilizer products.
Omnia's agricultural division consists of Omnia Fertilizer, Omnia Specialities & Omnia Specialities Australia.
Today's farmer has to stay abreast of the rapidly evolving technical aspects of production, as well as the advanced measures required to mitigate risk in the various crop & product markets.
The agricultural business is marketed to farming customers under the banner of Omnia's proprietary Nutriology concept ecompasses the growing of crops using increasingly scientific & technological methods, optimising crop yield on a sustainable basis. The Nutriology offer is backed up by the Omnia AgroPlanning system, using soil samples as a basis for nurient recommendations in conjunction with the Omnisap system (enables an exact understanding of how to optimise the nutrients in the sap of a plant during its growth cycle).
The trend to technology-based agriculture fuels the use of Omnia's precision agriculture, which involves the use of advanced technology like GPS to enable a precise plant nutrition management.
Omnia Fertilizer produces dry, liquid & speciality fertilizers, and supplies raw materials & intermidiate products to the explosives business. It sells mostly to end users, co-operatives & wholesalers.
Omnia Fertilizer exports into the rest of Africa (it includes Omnia Fertilizer Zambia & Omnia Fertilizer Zimbabwe).
Omnia Specialities, as part of the Nutriology™ offering, provides a range of specialised products & services targeted at creating value for farming customers.
Omnia Specialities is one of the few speciality fertilizer businesses in the world with access to the full complement of raw materials required for the production of these sophisticated nutritional compounds. This key differential is provided by the close association between the speciality business and Omnia's traditional fertilizer business, and by Omnia's innovative proprietary technology for the production of calcium nitrate, a fundamental ingredient of
speciality fertilizer.
The speciality business includes an array of advanced support services, such as their unique OmniSap™ technology, a hi-tech diagnostic tool that measures a plant's nutrient profile through sap analysis.
Rand/$ exchange rate impacts sales prices.
In SA Protea Polymers is second only to the giant Sasol Polymers. Prochem is the leading distributor & trader of speciality & industrial chemicals in Southern Africa.
I have Omnia worth from R63 to R102 a share (current price R84), and AECI worth from R23 to R78 a share (current price R77). The low-end of the value is if the last 6 months free cash flow is extrapoloated, and the high end if the average of the last 5 years free cash flow is extrapoloated. The valuation also depends on the tangible net asset value per share being solid. No growth in free cash flow is assumed, and cash flows are discounted at 13.6%.
If Omnia's free cash flow in 2011 is increased by the R250m expenditure on the Nitric Acid Complex, then its valuation changes to varying from R107 to R118, giving a buy price of R75 to R83.
Add in a 30% margin of safety, and we're looking at buying Omnia somewhere between 44 and 71, and AECI somewhere between 16 and 55 (but arguably a margin of safety has already been built in by the high discount rate and the assumption of now growth?).
Construction of a new Nitric Acid Complex is proceeding according to plan & within budget, for commissioning in the first quarter of 2012. The R1.4bn complex comprises a nitric acid, ammonium nitrate and PGAN plant. The new nitric acid plant production capacity is 40% higher than the current fully utilised nitric acid plant.
|
Revenue |
Profit |
Chemicals, operates throughout southern & eastern Africa. Volumes declined as a result of the continued reduction in output from the SA manufacturing sector. |
1693 |
57 |
Mining - BME (operates throughout Africa) & Protea Mining Chemicals (operating in Southern Africa). Megamite plant became fully operation in September 2011 (explosion in March 2011 resulted in plant being out of commission until August 2011), but whilst it was out of commission alternative product had to be sourced to supply customers, often at a gross loss. A loss to BME of R18m was recorded for the period, and there's an insurance claim. |
1378 |
187 |
Agriculture - Produces fertilizers for farmers, co-operatives & wholesalers throughout southern & east Africa, Australasia & Brazil. Margin compression was experienced as a result of more expensive nitrogen materials, which will reverse on start-up of the new Nitric Acid Complex. |
1881 |
107 |
Omnia claims the weaker rand will positively impact its divisions.
A slowdown in mining activity would hurt.
The recent sharp drop in global carbon credit (CER) prices will most likely result in negligible CER revenue for the year (how much free cash flow was this contributing?)
Presumably find in dollar terms and convert to Rands.
A large part of Omnia's valuation is locked up in its tangible net asset value.
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