Report
Steph Erasmus

Omnia | More questions than answers?

Despite an improved financial position, Omnia is not creating positive economic value added in its divisions. Omnia experienced complications in the ramp-up of its new nitrophosphate plant. Due to the delays, we expect the guided cost savings (c.ZAR 100m) from the new nitrophosphate plant to materialise 12 months later than initially guided. Disappointingly, Omnia management could not guide how much of the nitrophosphate cost savings were in the base in H1 '20, making forecasting challenging. However, given Omnia's history of missing guidance, the new management team approached its guidance conservatively. Our analysis suggests that Omnia suffers from a lack of geographical diversification, specifically in its mining operations which is unlikely to change in the next five years, in our view. Furthermore, we believe Omnia could lose its Kansanshi and Sentinel mining contracts in Zambia that contribute c.10% to Group operating profit. The two Zambian mining contracts come up for tender in 2020/21. Positively, we see Oro Agri as providing geographical diversification for Omnia as it becomes a more significant part of Omnia's Agricultural pillar and expect Oro Agri to contribute c.22% of total Omnia operating profit by FY ‘22f.

We estimate that the counter is trading at a 13.3x rolled forward PE (1.2x PE relative). Our average DCF and EV/EBITDA valuation methodology delivers a one-year target price of R38.69/share post rights issue, implying a total return of 10.2%. The total return is 5.5% less than our estimated market return of 15.7%. Accordingly, we downgrade Omnia to an UNDERPERFORM rating
Underlying
Omnia Holdings Ltd.

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.

Provider
Avior Capital Markets
Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

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Analysts
Steph Erasmus

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