Chemicals, fertiliser and explosives group Omnia is upbeat about SA’s agricultural prospects, expecting sustained demand for inputs as favourable weather and prices underpin the sector.
Agriculture operated as an essential service during Covid-19 and even managed to increase output during the first half of 2020. This helped the middle-sized company to create value for shareholders and to move closer to paying a dividend in early 2021.
Omnia is expecting further improvement in the sector, including through improved planting, as well as sustained international demand for citrus and nuts.
The diversified group’s agricultural interests, which account for about half of its revenue, have seen double-digit revenue growth in its six months to end-September, helping to offset contraction in mining and chemicals as Covid-19 disrupted supply chains and temporarily mothballed mines.
Omnia’s agricultural business reported double-digit growth in the six months. The business usually accounts for more than half its revenue on an annual basis.
Omnia is expecting further improvement in the sector, through improved planting as well as sustained international demand for citrus and nuts.
Profit after tax from continuing operations increased 819% from R26m earned in the six months to September 2019 to R239m for the six months to September 2020.
The company’s net asset value climbed 5.49% from R9.1bn to R9.6bn over the same period. Net debt fell to R1.9bn from R3.3bn previously.
“I’m incredibly pleased with these results, which cover April to September, while the hard lockdown ran through April, May and June. We have managed to grow our businesses according to key metrics and create value. Our market capitalisation has grown from just under R2bn to over R7bn over the past few months,” CEO Seelan Gobalsamy said.
The company said it would be conservative regarding acquisitions, and surplus cash may be returned to shareholders.
Omnia sold its prized Oro Agri business in October for $165m, having bought the business for $100m in May 2018. “Once the sale of Oro Agri is completed we will look at paying a special dividend and a share buyback,” Gobalsamy said.
Group revenue from continuing operations declined 1.2% to R8.2bn to end-September, while profit after tax jumped to R252m from R35m previously, with the group saying it saved on staff, travel and vehicle costs.
Agricultural revenue in SA rose 14% to R2.1bn, while revenue in the group’s international agriculture segment jumped 55% to R1.28bn, with Australia exceeding expectations, partly due to increased exports and early purchases as customers sought to avoid supply chain disruptions.
Independent analyst Anthony Clark said Omnia has shown a strong recovery under Gobalsamy’s leadership.
“The recovery narrative that Omnia management detailed six months ago has certainly burst into the foreground with earnings rising from last year’s 43c to this year’s R1.41,” he said.
“Pleasingly, with working capital now under control and debt about to be possibly extinguished following the sale of Oro Agri, Omnia has an embarrassment of riches.
“There was also a pleasing recovery in agriculture and a slid base has been set up for the rest of the 2021 financial year,” Clark said.
Aslam Dalvi, a portfolio manager at Kagiso Asset Management, said Omnia’s strong performance should gain greater momentum in the second half of the year.
“Growth into the second half of the year will be supported by the delivery of planned cost savings, improving demand as the impact of Covid-19 reduces and improving utilisation across key manufacturing plants,” he said.
“Regarding the medium-term outlook, the business has invested a large amount of capital in manufacturing facilities and acquisitions over the last few years, with many of the cost and synergy benefits still to materialise.”
Omnia’s share price closed 4.07% higher at R46.00 on Tuesday, up 30% year to date and 179.39% on a six-month basis.
With Karl Gernetzky
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