Our opinion on the current state of AECI

AECI (AFE) is a leading producer of chemicals and explosives in South Africa. It supplies products for the mining industry, water treatment, animal health, food and beverages, and the industrial sector. It has businesses in Australia, North America, Europe, Asia, and Africa. It employs 7600 people in 22 countries. It also has a property division called "Acacia". This company has successfully diversified away from its exposure to South Africa (40% of total revenue) and shown its ability to make acquisitions which boost turnover and profits. In its results for the six months to 30th June 2023 the company reported revenue up 19% and headline earnings per share (HEPS) up 5%. The company said, "EBITDA and EBIT margins remained stable at 10% and 7%, respectively, demonstrating the resilience of the Group’s core businesses in an operating environment characterised by ongoing volatility and change". In a voluntary update for the nine months to 30th September 2023 the company reported, "Revenue in AECI Agri Health and AECI Water was up on the prior period driven by higher selling prices and moderately higher sales volumes. However, the lag in cost recovery affected margins and is expected to correct in the last quarter of this year. The Group EBITDA and EBIT margins at 10% and 7%, respectively, were in line with the prior period". On a P:E of 8,43 and a dividend yield (DY) of 4,9%, we believe that it is relatively cheap at current levels. Technically, it has made a bottom at around R70 per share in April/May 2020 and has been trending up since then although there has recently been a cyclical sell-off from which it is now recovering.