Afrimat has a good track record of buying businesses and integrating them, and it has become one of South Africa’s biggest construction materials businesses.
Management has often been lauded for its capital allocation skills and ability to keep a tight grip on the balance sheet. However, results for the past year have fallen into the crusher, mainly driven by extraneous factors, and the stock is down 41% to R41.12. It was only a year ago, in July 2024 when Afrimat was trading at a record high of R74.
After the announcement of the R800m Lafarge aggregates and cement deal, market optimism on Afrimat management’s ability to rehabilitate Lafarge, a quality but neglected asset, rode high. However, storm clouds were brewing.
First, the Chinese economy and property market cooled, leading to a slide in the global iron ore price, a bulk commodity that’s incredibly important to Afrimat. Iron ore in financial 2025 comprised 24% of group revenue but 50% of operating profit. In financial 2024, iron ore was 68% of profits. A firming rand also took some shine off the export revenues.
Second, the Lafarge acquisition was announced in June 2023 with the expectation of swift regulatory approval. But due to extensive delays by the Competition Tribunal, the deal was concluded only in April 2024. The delays left Lafarge a dead duck asset, and its operating performance tanked as Afrimat could not get its hands on the business to start the rehabilitation process.
In financial 2025 results, the Afrimat aggregates division — encompassing a year’s contribution from Lafarge — saw profits rise 40% to R383.5m. The problem was the unexpected R285.5m loss from Lafarge cement as the delays in consolidating the asset weighed.
Another blow was the slide in Nkomati Anthracite, which experienced underground mining problems and export shipping delays when political violence in Mozambique led to the closure of the border to the Maputo port. Nkomati’s profits declined 71% to R48.6m year on year.
Afrimat was also investing in the Glenover phosphates project, which has consumed R800m of capital with dismal returns to date. In the financial 2025 results, the asset lost R35m, increasing its year-on-year losses.
Moreover, thanks to the Lafarge and Glenover acquisitions, Afrimat’s debt grew to R1.66bn, or a gearing of 50%. Group finance costs soared 187% to R221.3m.
The delays left Lafarge a dead duck asset, and its operating performance tanked
These events weighed on Afrimat and headline earnings for the year ended February 2025 dropped 87% to 72.3c a share. The June 2025 capital markets day and August AGM added little encouragement of any substantive earnings recovery for interim results to August 2025.
Off a low first-half headline earnings base, IM believes Afrimat will need to issue a JSE trading update, but it will not set the world on fire. Losses in cement and high finance costs will continue to weigh. Iron ore has been flat on the year and has only recently ticked higher.
Still, there are some signs of a recovery.
Nkomati should show improvement in the second half with better pricing and export volumes. Financial 2026 headline earnings should show growth from the dire 72.3c a share back to the 300c-350c range, taking the earnings multiple to 13.
Fixing the technical problems at the Lafarge cement plant would mean a material reduction in losses. Afrimat hopes to get this unit to breakeven into 2026.
Iron ore, the key profit driver, started the interim period at $102 a ton, fell to a low of $92 a ton and only recently started to recover. Materially higher and consistent domestic volumes to ArcelorMittal South Africa will soften the flat export expectations.
Hefty selling after the capital markets day drove the counter down to a five-year low. At R41.12, Afrimat has been beaten up by the market. IM foresees an earnings recovery to August 2025 but nowhere near what the market wants. A material second-half recovery to the glory days is by no means guaranteed, but medium-term gains into the second half of 2026 should accrue to patient investors.
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