AECI Limited 9100cps (Outperform, target 11000cps)
- AECI produced a result ahead of expectations for H1.
- Revenue increased 19% to R18,4Bn, around R2bn ahead of estimates. EBITDA gained 18% to R1.83Bn, extrapolating to a full-year figure of R3.7bn ahead of the current forecast of R3.2Bn
- The consensus full-year earnings estimate is for 1113cps, they reported first-half HEPS of 603cps.
- We suspect analysts will have to increase consensus estimates by around 10% for most metrices.
- We forecast that HEPS estimates is set to increase to above 1200cps for the full year and above 1300cps for 2024.
- The bulk explosives business was the star performer in the group with revenue climbing by 29%, the other divisions had commendable growth with growth upwards of 17%.
- On an operational level, the Schrim turnover was up 35% but severance and consulting costs largely resulted in a loss at EBIT level, this is unlikely to repeat itself in the second half.
- The group continues to focus on strengthening the balance sheet, gearing levels of 47% are within targeted guidelines but still relatively high. Lowering the gearing level and lower interest rates into next year and beyond will significantly reduce funding costs and add to earnings growth.
- Chemical prices in general remain weak, we do however expect some price recovery in the second half as the Chinese economy gathers momentum after the Covid lockdown.
- Free cash flow is set to recover as funding costs reduce resulting in lower gearing and risk.
- On an FPE of 7,5X and DCF valuation of upwards of 11000cps, the share offers value.
- The share price has moved into a wedge formation, we expect a bullish break after this set of results.
- We target a price of 11000cps, +20%, 12 months out, outperforming the JSE AllShare Index.
The graph depicts the price of AECI past 5 years.
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