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Standard Bank Group
AECI 07 February 2025

Model update to reflect most recent corporate activity

#themes: new management team, improving efficiencies, value creation

Event: The company will release its final results for the 12 months to December 2024 on 26 February 2025. We update our forecasts to reflect the more depressed European chemicals industry, the sale of Much Asphalt and Animal Products, the increased investment in Schirm (but expected earlier return to break-even) and comment on the announced resignation of its CFO. 

Impact: The European chemicals industry remains depressed, and we have therefore increased our forecast losses for Schirm (Germany) in FY24E. Management has committed an additional EUR10m to Schirm (Germany) with the expectation that the business should reach break-even by the end of FY25E. We have assumed that this will only occur by the end of FY26E. As a result of the tougher market for mining explosives, we have assumed an operating margin of 10.4% for mining in FY24E, from 10.6% previously. Regarding the sale of both Animal Products and Much Asphalt, we have assumed a settlement date and cash inflow of R1.2bn effective 31 March 2025. We believe the sale of Much Asphalt to be earnings-dilutive. FY24E is expected to be the year of transition for the company with the bold strategy of doubling EBITDA between FY22A and FY26E gaining momentum. This assumes a CAGR of 18% over the period, comprising 9% organic growth and 9% additional growth due to expected efficiency gains as a result of the restructuring that is currently taking place. We only forecast a CAGR of 9% over the period and our forecast EBITDA of R4.8bn in FY26E is conservative relative to management’s target of up to R6.4bn.  

Dividend: We believe that the current dividend policy (based on a dividend yield of between 2% and 5%) is not fit for purpose and have assumed a dividend policy based on 2.4x dividend cover from FY24E, based on a similar dividend cover of the Industrial sector at end of December 2024. Our modelling indicates that a net debt position of zero will be reached by FY26E, before the receipt of additional disposal proceeds, and therefore believe our dividend assumption is conservative. Much will depend on the time frame over which additional disposals take place (likely to be protracted) and any additional funds required to make acquisitions in the mining explosives space (as part of management’s FY30E mining strategy).

Management change: Optically, the resignation of AECI’s CFO in December 2024 is not great, but we believe it to be part of the culture and operational changes that have occurred following the acceleration of the CEO’s restructuring programme. The interim CFO, Ian Kramer, was interim CFO at AngloGold and has extensive knowledge of the mining industry with experience in corporate restructuring.

Valuation: Our FY24E and FY25E HEPS forecasts have been reduced by 9% and 6% respectively. Based on residual income and DCF valuation methods, we value the share at R105 and R118 respectively. Based on a 12-month forward P/E of 8x, we estimate a target price for the share of R102.


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