Our opinion on the current state of INSIMBI(ISB)

Insimbi Group is engaged in the manufacturing and supply of specialist products within the industrial sector. Their operations encompass sourcing, buying, packaging, processing, and recycling of ferrous and non-ferrous alloys, refractory and foundry materials, as well as plastic blow-moulding and injection moulding. The group also offers technical support to users of their products, which adds a service dimension to their primary manufacturing and supply operations.

In their financial update for the six months ending 31st August 2023, Insimbi reported a revenue decline of 4% and a decrease in headline earnings per share (HEPS) by 6%. The company attributed these results to challenging operating conditions, though it noted that price fluctuations in key commodities like copper, aluminium, nickel, and steel had somewhat balanced out. Despite these challenges, revenue was largely maintained at over R3 billion, a slight decline compared to the same interim period in 2022, with operating profit falling by 9%.

Looking ahead, Insimbi issued a trading statement for the year ending 29th February 2024, forecasting a substantial reduction in HEPS, anticipated to be between 50% and 60% lower than the previous period. This significant expected drop in earnings highlights ongoing operational challenges and possibly continued volatility in commodity prices which directly impact their business model.

From a technical analysis perspective, Insimbi’s share price has seen considerable fluctuations over the years. The stock was on an upward trend until June 2018, but it then fell to a low of 50c by December 2020. The share price saw a recovery, climbing to a high of 139c in June 2023, before entering another downward trend. These movements suggest a volatile stock, heavily influenced by external market conditions and internal operational factors.

Given the company's exposure to the fluctuating prices of commodities, Insimbi’s performance is intrinsically linked to the broader economic conditions, particularly within South Africa. A recovery in the South African economy could potentially benefit Insimbi, yet the stock remains a high-risk investment due to its susceptibility to market cycles and commodity price changes. Additionally, with an average daily trading volume of around R29,000, the share is considered marginal for investment by private investors due to liquidity concerns, which could make entry and exit positions more challenging to manage.

In conclusion, while Insimbi may stand to gain from an economic upturn, potential investors should carefully consider the risks associated with its commodity-dependent business model and relatively low liquidity in the market.