How explosive are AEL Mining at Half Year 2017?

AEL Mining is one of the best performing stocks on LuSE. Astute investors that have followed the performance of the company in 2017 would have been waiting with baited breath for the half year results.  Following their announcement in January 2017 of the launch of their most advanced initiating system, the intelliShot, the company continued to position itself as a leader in innovation in explosives in mining. This is no surprise. However, their success is tied to the production levels of the mining companies they support. Therefore a close look at the performance of the mining industry is necessary.

Recent data coming out of South Africa indicates the mining industry has enjoyed bullish performance due to improved commodity prices. One would argue that this would have any symbiotic company to be a beneficiary of this improved performance. However, according to their SENS announcement of 29th September 2017, AEL mining’s turnover for the first half of 2017 showed a slight decrease compared to the same period in 2016. Turnover for the six months was K231,919 million compared to K251,772 million in 2016.  The company attributed this 8% decrease due to fluctuations in the USD to ZMW exchange rate for the period to June 2017.

The currency haircut shows the elasticity of revenue made in dollars. Hence why finance managers have the difficult task of ensuring that they minimize value destruction through currency losses. Some may employ strategies such as hedge or astute choice regarding the currency they access short term and long term financing. In the case of AEL however, the currency haircut   did not affect their bottom line.  With less than a 5% increase in income tax paid (due to a ZRA final assessment issue that has now been closed), their increased earnings from K34,828 million for the six months ended 30 June 2017 compared to K28,658 million during the corresponding period in 2016.

In terms of prospects, the company are bearish on their likely end of year performance. They project revenue to come in at 5% or lower come year end due to lower productivity in the industry and a stronger dollar. Although the latter excuse makes sense, it is the former excuse that requires further investigation. AEL are a dominate player. The mining companies are resolving some of the issues that have had regarding factors such as energy supply rates for 2017. Commodity prices are on the increase. What then is hounding AEL’s revenue performance?

The answer may lie in the mining companies they do business with. According to Mining Weekly, more mining companies have chosen to improve their performance by reducing on variable costs. This has led to industry innovation around blasting technologies (serious variable cost).  However, as we had noted earlier on in the article, AEL are a leader in innovation in blasting technology. We will wait for the numbers at year end and still ask the question: What is hounding AEL’s revenue performance?


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