Omnia six month results as expected

Today we had 6 month results from a company we have liked for a while now. And rightly so, Omnia have had a fantastic year. If you are uncertain of what these guys do, here is a brief explanation from their website.


"Omnia Holdings Ltd. and its subsidiaries (together, "the group") distribute speciality, functional and effect chemicals and polymers, offer a broad spectrum of services to the mining industry and produce granular, liquid and speciality fertilizers. The group has a presence and operations throughout South Africa and Africa, as well as in New Zealand, Australia and Brazil."


Basically there are three main divisions, Mining, Agriculture and Chemicals. Let's look at the numbers and how the future looks for this company.


Group revenue rose 21.5% to R6bn on the back of strong volume growth in the mining division and price increases. Operating profit increased 55% to R547 million thanks to big margin growth in the mining and agricultural divisions. This equated to 546.3c a share. The stock, which has had a great year so far (up nearly 50%) is now trading at R130. Historically the second half is better than the first thanks to seasonal variations in demand from the agricultural division. This puts analyst expectations at around 1200c for the full year. Trading at 10.8 times full year earnings the stock looks very reasonable.


Let's look at the divisions. Mining (mostly bulk explosives and bulk emulsion) which contributes 34% of revenues and 61% of profits had a really good year. Surprising considering our tough mining environment but their presence north of our borders was their saving grace. With a weaker rand and lots of mining projects expanding in Africa this division grew its profits by 79%.


Agriculture (Omnia Fertilizer is the market leader in Southern Africa) contributed 35% to revenues and 34% to profits also had a good year coming off a low base. This part of the business is very exciting as Africa becomes more and more prominent in agriculture. We have the fertile land, a great climate and the expertise are growing. Africa is also coming off a very low base. Margins improved from replacing expensive inputs with lower cost nitric acid from the new nitric acid complex. We will talk about this development later though.

Chemicals contributes 31% to revenues but only 5% to profits. Margins are not great in this business, only 1.4% which is well below target of 4.5%-5.5%.


Where the kicker lies for this business is the big Nitric acid plant they have built in Sasolburg. Production began in March 2012 which is going to benefit all three divisions. The R1.4bn plant has 40% more capacity than the first nitric acid plant and is by far Omnia's biggest investment. Nitric Acid is a key material in both fertilisers and explosives which will drastically cut costs and improve margins in both the agricultural and mining divisions.


Soft commodity prices are booming, mining in Africa is rife and the company is very well positioned to benefit from these macro elements. At these prices I would be adding to the stock even after the share price has rallied.