AECI | Model Update
Operating profit splits between AECI's (AFE's) existing operations and the Group's two acquisitions, Schirm and Much Asphalt,We correct our treatment of the purchase price amortisation (PPA) which was incorrect in our previous report, “An explosive performanceâ€. We mistakenly added the PPA charges to basic earnings to calculate headline earnings,
We update our risk-free rate used in our free cash flow to equity valuation, and
Due to a SENS last week Wednesday guiding for negative Omnia FY ‘19f earnings, we exclude Omnia from our peer valuation sample.
We estimate that the counter is trading at an 8.4x rolled forward PE (0.7x PE relative). Our DCF method delivers a one-year target price of ZAR130.29ps (ZAR132.76ps previously). Combined with our forecast 5.8% dividend yield, our analysis implies a total return of 37.5% which is 25.2% more than our estimated market return of 12.3%. Accordingly, we retain our OUTPERFORM rating.
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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