Shares of chemicals, fertiliser and explosives group Omnia plunged to their lowest level in two weeks on Monday after the group outlined half-year losses at its Zimbabwean operations that more than quadrupled, weighing on group earnings.
The shares fell more than 6% before settling 5.7% lower at R69.23 on Monday, but they have gained more than 14% over the past year.
This came as the group reported headline earnings per share (Heps) from continuing operations, which includes those in Zimbabwe, were expected to rise by 1%-11% from 286c.
The Johannesburg-based group said Omnia Zimbabwe, which is subject to the application of IAS 29 financial reporting in hyperinflationary economies — which results in earnings volatility — is expected to report a loss after tax of about R172m for the first half of its 2023 year after a loss of R29m previously.
Omnia said the situation was complicated further by the government of Zimbabwe introducing a change in monetary policy, with the implementation of an interbank mechanism.
“This caused a further notable devaluation of the Zimbabwean dollar, resulting in disproportionate foreign exchange movements, most of which are unrealised, in this period’s results,” Omnia said.
Small Talk Daily analyst Anthony Clark said the market had focused on the effect of Zimbabwe’s hyperinflationary environment and missed the underlying gem in the core SA operations, which rose significantly.
“We saw the share price fall 6%-8% this morning because once again the market simply doesn’t get what is going on inside Omnia,” Clark said. “They see a quick headline figure of underlying earnings only being up one or two percent but that’s purely because of the hyperinflationary accounting in Zimbabwe,” he said.
Omnia said it has subsequently moved to introduce an adjusted earnings metric to measure operational performance and provide stakeholders with “better clarity” on the group’s underlying performance.
This means that adjusted Heps from continuing operations, which excludes the effect of Zimbabwe on the overall group, are expected to increase by 26%-36% to 382c-412c from 304c.
Omnia attributed the jump to an improved overall volume-margin mix and supportive commodity prices in the first half.
“Omnia expects to deliver another robust set of financial results reflecting the underlying strength of its business model,” the group said.
Highlighting that Omnia’s second half was traditionally better than its first half, Clark said the company is in the enviable position of having fertiliser stock on hand.
He said owing to an aligning of multiple factors including global supply chain issues, sanctions against Russian exports and congestion at SA’s ports, Omnia beefed up its stockpiles during the quiet winter period to have sufficient stock to meet demand.
“I believe at some point they are going to close Zimbabwe down because all it is is an irritation and a distraction away from the fact that the underlying core business is up roughly a third year on year,” Clark said.
Omnia’s interim results will be released on November 22.
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