AECI | Good things come to those who wait
AECI (AFE) delivered strong organic HEPS growth of 9% y/y in H1 ‘18a. AFE invested R4bn into acquiring Schirm and Much Asphalt with the intention of diversifying revenue, extracting synergies, and reducing earnings volatility. While we believe the opportunities for AFE in Africa, Asia Pacific and Latin America remain compelling, the recent acquisitions and growth initiatives have elevated the financial and execution risk profile of the group. We estimate that the counter is trading at a 10x rolled forward PE (0.72x PE relative). Our DCF method delivers a one-year target price of 11 770cps (13 800cps previously). Combined with our forecast 5.4% dividend yield, our analysis implies a total return of 15.1%. Which is 1.8% less than our estimated market return of 16.9%. Accordingly, we downgrade our rating to MARKET PERFORM.AECI is an explosives and specialty chemicals company focused on providing products and services to customers in the mining, manufacturing and agricultural sectors. Co. has regional and international businesses in Africa, South East Asia and Australia. Other markets of interest are in Latin America. Co.'s segments include: Explosives, which comprised of the manufacture of commercial explosives and initiating systems for use by the mining industry; Specialty chemicals, which comprised of small- to medium-sized businesses manufacturing and marketing specialty chemicals to a range of industries; and Property, which comprised of the realization of the surplus land and property assets of Co.
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