Omnia | Banking on a chemical reaction
Omnia has entered into a standby underwriting agreement with Absa Bank Limited, Investec Bank Limited, Rand Merchant Bank and Standard Bank of South Africa Limited. The four banks have undertaken to severally underwrite 25% of the ZAR2bn proposed rights offer each. The underwriting agreement provides reassurance of Omnia's going concern status. However, uncertainty around Omnia will continue until shareholders provide approval on 25 Jul ‘19 and a rights issue price is established. Despite the risk of a better entry point, we believe Omnia offers value at current levels with an expected one-year return of c.38%.We estimate that the counter is trading at a 4.8x rolled forward PE (0.40x PE relative). Our EV/EBITDA valuation methodology delivers a one-year target price of ZAR 40.07/share post rights issue, implying a total return of 38.0%. This is 27.2% greater than our estimated market return of 10.8%. Accordingly, we upgrade to an OUTPERFORM rating.
Omnia Holdings engaged in the business of services and solutions for the agricultural, mining and chemicals industries. Co.'s segments include: Agriculture, which comprises Omnia Fertilizer and Omnia Specialties, produces and trades in granular, liquid and specialty fertilizers for a range customer base of farmers, co-operatives and wholesalers; Mining, which comprises BME, a manufacturer and supplier in southern and West Africa of explosives, related accessories and blasting services to the mining, quarrying and construction industries; and Chemicals which comprises Protea Chemicals, a manufacturer and distributor of specialty, functional and effect chemicals and polymers.
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