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Omnia. Can we make some money on this?

April 16, 2024
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FinMeUp
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FinMeUp

Omnia [JSE: OMNJ]. Buy/hold/sell?


About

Omnia is a diversified Group involved in the agriculture, mining, and chemical industries. The Group operates in 25 countries and has a workforce of 4010 employees. Its segments include agriculture, mining, and chemicals:

  • Agriculture RSA, which produces and trades in granular, liquid and speciality fertilizers
  • Agriculture Trading, which relates to wholesale and trading of agriculture commodities throughout Africa
  • Mining RSA, which relates to the bulk mining explosives business in South Africa and focuses on blasting agents, such as bulk emulsion and blended bulk explosives
  • Chemicals RSA, which includes Protea Chemicals Namibia (Pty) Limited, a manufacturer and distributor of speciality, functional and effect chemicals and polymers.

Technical Analysis

[Refer to figure 2]

Market structure: The share price has been in an upward trend since March 2020, ranging from its low at 1500c all the way to its recent high of 8800c. The share price has, however, retraced from its high of 8800c in May 2022 down to the current level of around 7000c.

Current levels: Omnias share price is currently at its short-term support level, given its upward trend of the past two years. Looking at the past year, there have been two significant surges in price: September-November 2020, and March-May 2022. 

Momentum indicators: On the weakly time frame, the RSI is converging to support levels (given a bullish trend) at around the 45-50 levels. The MACD indicates a severe divergence, as illustrated by the dark red histogram levels. This suggests that the downward momentum is strong, but it also signals a potential reversal in the trend if the current market structure holds. 

Financials

Omnia Holdings Limited reported earnings results for the full year ended March 31, 2022. 

Revenue decreased slightly between 2019 and 2021, but in the recent financial year, the company reported sales of R21,437m compared to R16,436m a year ago. This represents an increase of over 30%. Gross profit remained stable at around 22% as per historical levels. 

According to Omnia, the 30% increase in revenue was due to higher commodity prices, and a combination of strong volume growth in Mining and increased volumes in Agriculture. 

Revenue contribution from each sector includes agriculture (55%), mining (31%), and chemicals (14%).

Key income statement figures:

  • Revenue: R21 437m (FY21: R16 436m)
  • EBITDA: R2 478 (FY21: R1 576m)
  • Operating profit: R 1726m (FY21 R774m)
  • Operating margin 8.2% (FY: 4.9%)
  • Earnings per share: R6.72 (FY21 R3.61c)
  • Ordinary Dividend: 275c (FY21: 200c) 
  • Dividend yield 3.89%

Key balance sheet figures:

  • Current ratio of 2.04 indicates healthy liquidity levels.
  • Debt to Equity 2.57% is a result of the company paying off a large portion of its debt between 2021 and 2022. 
  • Net finance cost decreased from R264m to only R76m following the extinguishment of debt in the prior period. 

Investment case

Omnia had a stellar financial year. The financials look better than ever, and the share price reflects the hard work put in by the management. The big question is: How much runway does it still have? Is there still money to be made here or are there better potential investment opportunities.

Lets talk about revenue. Revenue is the most important line item in the financial statements. It is calculated as Price times Quantity. Price increases are often not sustainable, especially in volatile industries such as commodities. Quantity on the other hand is much more important. If a company can increase its sales volumes, it is likely to continue growing its revenue in the years to come. [Refer to figure 3]

  • The agriculture division grew by 60%. This is largely due to commodity prices. As evident in [figure 4], the company generates the most revenue from the copper, cobalt and nickel divisions. These commodities have skyrocketed in the past year, increasing by 15%, 58% and 300% respectively. 
  • The mining sector grew by 43%, largely due to an increase in volume. This, of course, is a very positive sign for the company going forward.

Technical analysis: Based on the technical, we believe Omnia signals a buy. The overall market structure is positive, and the current price has retraced to its support levels on both the price and the momentum indicators. Should the pattern continue to play out, there is still some runway for the share price.

Financials: The overall financials look good. Omnia is still trading at only a 10 P/E, despite the growth over the last two years. This indeed presents an interesting investing prospect. The question is, is the recent growth due to a strong commodity cycle, or has the company managed to improve efficiency and gain some long-term market share? We believe it is a little bit of both.  

FinMeUp is taking a small, short-term position in Omnia. We will reconsider our position when the interim set of financials is released.

Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only.


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