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Standard Bank Group
AECI 19 August 2025

FY25 interim results solid but third-party issues continue to hamper returns

#themes: Cost optimisation and strategic realignment of operations

Event: AECI delivered solid results for 1HFY25 with HEPS of 604c, ahead of our forecast of 588c. A dividend of 100cps was below our forecast of 130cps and represents a dividend cover of 3x based on basic earnings per share. The highlight of the result is the good progress being made on the disposal of non-core assets coupled with higher margins from the mining business as the company focuses on offshore markets. 

Results in more detail: Mining’s revenue of R8.7bn was below our forecast of R9.9bn and in part reflects disruptions in the manufacture of shock-tube detonators. Despite disruptions caused by difficulties in the sourcing of ammonia and downtime experienced due to power outages, an operating margin of 11.9% compares favourably with our forecast of 11.0% and reflects the company’s increased exposure to the higher margin international markets. Chemicals’ revenue of R4.6bn was below our forecast of R4.9bn and reflects the tough South African market. Credit losses of R113m contributed to an operating margin of 5.2% (7.7% adjusted), below our forecast of 8.8%. Managed Businesses’ revenue of R2.8bn was below our forecast of R3.5bn and an operating loss of R46m (adjusted for impairments) was below our forecast of an operating profit of R142m. 

Catalysts: Management’s strategy of avoiding a fire sale of its non-core operations appears to be working and the disposal of both Schirm (US) and Food & Beverage (likely in 2H25E) together with Sans Fibers, Animal Health and Schirm (Germany), likely over the next 12 months, is expected to realise between R3bn and R3.5bn, including the proceeds from the sale of Much Asphalt. Importantly, the disposal of the Managed Businesses will result in an uplift to both group ROIC and ROE, above both its WACC and cost of equity.

Forecasts and valuation: We have revised down our forecasts to allow for the moribund local economy and its impact on the Chemicals business and to allow for likely additional “one-off” costs associated with the poor performance of SOEs and other suppliers to AECI. While the disposal of certain businesses is likely during 2H25E, we continue to recognise their earnings contributions in our forecasts. Our FY25E, FY26E and FY27E forecasts have been reduced by 0.4%, 8.3% and 14.8% respectively. Our valuation ranges between R117 and R121 (prev R110 and R120) based on our DCF, residual income, intrinsic value and forward PE valuation/pricing methodologies. Our dividend forecast for FY25E of R4.31 represents a dividend cover of 3x based on our HEPS forecast, providing a dividend yield of 4.0%.


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