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Corporate and Investment Bank
Standard Bank Group
AECI 12 March 2026

Financial results - year ended 31 December 2025

#Themes: Portfolio restructuring largely complete, Mining remains the group's primary growth engine, Chemicals retained as a cash-generative platform supporting the mining value chain, Modderfontein optimisation expected to unlock operating leverage in nitrates and explosives

Action/Event: AECI reported its financial results for the year ended 31 December 2025, with headline earnings increasing strongly by 54% despite a decline in group revenue as the company continued to simplify its portfolio and improve the quality of earnings. Group revenue declined 10.2% to R32.8bn, reflecting the disposal of non-core operations and 1H operational constraints. However, profitability improved significantly with group EBIT increasing 49% to R1.5bn as performance within the Mining division strengthened and operational improvements began to emerge across the group.

Reaction/Impact: The results reinforce the structural shift underway within AECI as the group repositions itself around a mining-led growth platform, supported by a rationalised chemicals business that continues to play an important strategic role within the portfolio. While Mining will increasingly drive earnings growth through explosives and mining chemicals, the streamlined Chemicals division is expected to generate stable free cash flows. This provides an important funding base for investment within Mining while maintaining balance sheet discipline. At the same time, the chemicals platform retains exposure to South African industrial activity and could benefit from any improvement in domestic manufacturing demand over time. Management also clarified the strategic importance of Modderfontein, which remains central to AECI's explosives manufacturing chain.

Catalysts: Several factors should support further earnings growth over the medium term. First, the optimisation programme at Modderfontein is expected to improve utilisation within the nitrates complex and unlock operating leverage in explosives manufacturing. Second, continued improvements in product mix, including higher-margin technologies such as advanced boosters and electronic detonators, should support margin expansion within the Mining division. Third, AECI continues to expand its presence in key mining jurisdictions. Growth in West African gold mining, development within the Central African Copperbelt and investment in Australia provide opportunities to expand explosives and chemicals demand across multiple mining regions. Finally, the repositioning of the Chemicals division as a cash-generative platform provides a stable funding base to support expansion within Mining while maintaining disciplined capital allocation.

Valuation: We forecast HEPS and DPS in FY26E of 1,479c (+35%) and 845c (+271%) respectively compared to our previous forecasts of 1,647c and 659c respectively. Based on a normalised ROE of 19% (previously 17%) and a justified forward P/E of 8.5x (previously 7.1x), we derive a target price for AECI of R132/share. Our residual income and DCF-based models value the share at between R152 and R157. Our valuation range has increased to between R132/share and R157/share (previously R117 to R121), providing a total return of between 20% and 43% together with a dividend yield of 7.7%.


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