Omnia shares buoyant

Omnia’s accountants modestly show in the announcement of the results for the six months to September that earnings increased by more than 100% compared with the extremely difficult first six months of the previous financial year.

In fact, earnings increased by 620% to R252 million compared with R35 million a year ago.

Headline earnings per share increased by a far lesser percentage due to the dilution brought about by Omnia’s rights issue a year ago – nevertheless recovering nearly 230% from 43 cents to R1.41.

The rights issue raised R2 billion, which went a long way in reducing Omnia’s debt and contributed to the huge turnaround in its fortunes; the dilution is irrelevant for shareholders who followed their rights and subscribed for their shares.

Chief executive officer Seelan Gobalsamy describes the results as “incredibly pleasing” and indicates that shareholders can expect even further improvement in the second half of the year.

He is optimistic that all three divisions in the group will show good growth in the second half of the financial year and in years to come.

The agricultural division traditionally earns the lion’s share of its income in the second half of the year during the spring and summer planting season in SA.

“We are watching the weather. We are seeing good rains and see fertiliser moving out of our warehouses,” said Gobalsamy.

Meanwhile, the chemical division is recovering from the [hard] lockdown that saw a large portion of its production classified as non-essential products.
Omnia reported that the closure of certain production lines could not be offset by the sharp spike in demand for hygiene-, disinfectant- and cleaning related products.

Revenue decreased by 28% during the abnormal six months, but profit still showed a small improvement of 4% to R55 million.

Although sectors using chemicals have since returned to normal, sales volumes and prices remain under pressure worldwide and are projected to remain under pressure over the short- to medium-term, following the significant decline in oil prices and weak global growth prospects.

“Mining will also come back,” said Gobalsamy. “While base metal and mineral prices might remain subdued if the global economy falters, precious metal prices are expected to show at least modest increases in 2021.”

Omnia said mining production in SA is likely to recover in the second six months of the financial year, to levels similar to those before the lockdown.

Gobalsamy said Omnia produced good cash flow and management is “very, very comfortable with the current debt level” – which reduced from around R4.5 billion a year ago to R1.9 billion.

Now, Omnia is looking at rewarding shareholders for their patience and trust.

Management indicates that shareholders can expect a good dividend at year-end – maybe even a special dividend or a share buyback – especially once the disposal of the Oro Agri businesses are completed.

Clever and courageous investors who took a chance on Omnia have been well rewarded this far.

And there was lots of time to get in, with the share price languishing below R30 for most of the last 12 months, dropping to below R20 for a few days during the market crash in March.

The price jumped R1.80 on Monday to R46. The new results put the share on a price-earnings (PE) ratio of 15.9 times, with a forward PE probably much higher if management’s comments are anything to go by.

I should have bought some shares last year.

This article first appeared on Moneyweb and was republished with permission.

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