Omnia trading update looks very decent

Omnia released a trading update this morning: "Shareholders are advised that the Group's basic earnings per share and headline earnings per share for the 6 months ended 30 September 2012 are expected to be between 520 cents and 555 cents (based on a weighted average of 66.449 million ordinary shares in issue), an increase of between 50% and 60% on the prior year's published basic earnings per share and headline earnings per share of 346.8 cents (based on a weighted average of 66.322 million ordinary shares in issue)."


Whoa! And not surprisingly the share price is up 54 percent over the last twelve months, with the all time high reached in the middle of September, just over a month ago. Amazingly this is a business that had a rights issue not so long ago, not that this has too much to do with the numbers. That cash was earmarked for expansion, the building of a nitric acid and ammonium nitrate facility in Sasolburg was approved by the board in May of 2010. So you could argue that this was money well invested, not spent.


The second half of the year, the half coming traditionally is much better from a revenue point of view, but that makes sense in terms of the seasons, not so? But what now? The stock like I pointed out has had a magnificent run. The revenue and profits split as per the 2012 annual report for the three separate divisions are as follows: Mining, 3.051 billion ZAR revenue, 476 million ZAR in profits. Agriculture, 4.476 billion ZAR revenue, 323 million ZAR in profits. Lastly, Chemicals, 3.418 billion ZAR revenue, and only 86 million ZAR profits. I am guessing that you should only really then "worry" about the two biggest divisions, but that would be wrong. The nitric acid plant has only been in production since March of this year, and as far as production facilities look, it sure is swanky, and should add as much as 40 percent more capacity than the first plant. This also reduces costs in the fertilizer and explosives production facilities, as now Omnia has their own feedstock.

At the risk of sounding too bullish on commodity consumption, both soft and hard, I would think that Omnia is still an interesting proposition at these current levels. The price forward to March next year trades on a very undemanding multiple of 10.4 times. Relative to what is a tiny sub grouping of shares in their "sector" they have the most compelling fundamentals. It all does depend on continued demand from mining for explosives, that might have some way to go, but I suspect that the future of agriculture in Africa, that has an exceptionally bright future. The only question mark is whether or not there would be outlandish sized orders for fertilizer which follows a rapid rise in agricultural commodity prices, that might see too rapid a rise. But that does not sound like a "bad" thing.