Picture: Nhlanhla Phillips/African News Agency/ANA
CAPE TOWN - The valuation levels of the JSE might look steep, but looking beyond the top 40 companies, shares seem to be priced reasonably to cheap.

Explosives and speciality chemicals company AECI reported strong interim results in the last week of July, and the price to earnings ratio is now a desirable 10.4 times. They delivered a good performance in the last three months of 2017, which continued into 2018.

This, together with contributions from the acquisitions of Schirm and Much Asphalt (effective February and April respectively), enabled AECI to increase its revenue by 24percent, profit from operations by 35percent and headline earnings per share by 19percent. Of the total revenue, 40percent was generated outside South Africa, mainly in dollars.

AECI is divided into five growth pillars, which are also the basis on which they report their results. Businesses in the pillars offer different products and services and are managed separately, because they require different technology and marketing strategies.

These pillars are Mining Solutions, Water & Process, Plant & Animal Health, Food & Beverage (Lake Foods and Southern Canned Products), and Chemicals.

By far the most significant segment of AECI is Mining Solutions, which contributes 48percent of revenue, but 57percent of profits. The businesses in this pillar provide a mine-to-mineral solution for the mining sector internationally.


The offering includes surfactants for explosives manufacture, commercial explosives, initiating systems and blasting services right through the value chain to chemicals for ore beneficiation and tailings treatment.

The Chemicals division contribute approximately 25percent of profit, supplying chemical raw materials and related services for use in the manufacturing, infrastructure and general industrial sectors. Thanks to the acquisition of Much Asphalt, the chemicals division grew revenue by 38percent.

The Plant and Animal Health division manufactures and supplies an extensive range of crop protection products, plant nutrients and services for the agricultural sector in Africa. This division now contributes 12.5percent of profits, in part thanks to the acquisition of Schirm.

Based in Germany, this is a contract manufacturer of agrochemicals and fine chemicals with a European and US footprint. Schirm produces agricultural chemical products such as herbicides, fungicides and insecticides under contract for clients such as Bayer, BASF and DuPont. It is the largest provider of external agrochemical formulation services in Europe and fits in with AECI’s international expansion strategy.

Water & Process ImproChem provides integrated water treatment solutions, process chemicals and equipment solutions for a diverse range of applications in Africa.

These include public and industrial water, desalination and utilities. The Food & Beverage businesses supply ingredients and commodities to the dairy, beverage, wine, meat, bakery, health and nutrition industries. They also manufacture and distribute a broad range of juice-based products and drinks.


Chief executive Mark Dytor is keen to start supplying asphalt to road builders in East Africa and would be “happy to invest” in manufacturing plants there. He intends taking Much Asphalt into countries like Tanzania, Kenya and Zambia. In Kenya, for instance, the authorities plan to construct a 473km four-lane highway between Nairobi and Mombasa.

AECI already have a presence in these countries, and it will be possible to tag on to these. Asphalt plants need to be within 200km of the projects they service, and AECI already has explosives plants in these areas. Much Asphalt is Southern Africa’s largest supplier of hot and cold asphalt products.

AECI’s main prospects are the opportunity to extract value from recent acquisitions.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the view of the entire PSG entity. AECI shares are held on behalf of clients.

 The views expressed here are not necessarily those of Independent Media.