Johannesburg - African Oxygen (Afrox) has said its restructuring initiatives will bear fruit when the company releases its interim results for the six months to end June next month.
The company expected earnings per share to increase between 72 cents and 79c per share, up between 106 percent and 126 percent from 35c per share for the previous period.
It said the headline earnings per share were expected at between 71c and 78c per share - compared with 90 percent and 109 percent declared last year and higher than the 37c per share during the period.
Afrox’s share price gained more than 8 percent to its highest in more than a year after it released the update on Tuesday before dropping below 1 percent in intraday trading.
Afrox corporate communications manager Simon Miller said the company was not in a position to comment because it was in a closed period.
Last year the group blamed prevailing economic conditions and intense competition for its weak earnings.
However, the expected results will prove otherwise in this period.
Wilhelm Hertzog, an analyst and portfolio manager at RECM, said the management team, led by chief executive Schalk Venter, had engaged in aggressive restructuring efforts to cut costs during the past year.
“These efforts are now bearing fruit. There is a base effect to take into account, though, as the first half of 2015’s results were depressed due to restructuring provisions taken in anticipation of downsizing the workforce and the like. These proved a bit excessive, and some were written back, but only in the second half of 2015,” Hertzog said.
He added: “The company has also gradually shifted its exposure away from what used to be its core customer base (mining, iron and steel) to more consumer-focused sectors of the market like health care, hospitality and the automotive sector, where demand has been more stable in recent times. As a large supplier of liquefied petroleum gas (LPG) to the South African market, the company has benefited from unreliable electricity supply by Eskom as LPG gained favour as a source of heating.”
Hertzog, however, warned that while the firm was looking to be on the right path, its biggest challenge would be to grow its revenue line given its exposure to the South African manufacturing sector, which was still under pressure despite the weakening of the rand over the past year.
Ian Cruickshanks, an independent analyst, said: “The trading update by Afrox is very impressive. What is evident from this update is that the company has done well to reorganise and restructure its business. New strategy has paid off and credit must be given to its management.”
The share price closed at R19.93 per share, 0.1 percent lower on the day.
BUSINESS REPORT