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IT’S BEEN A rough year for African Oxygen (Afrox). The chemicals group that manufactures and sells industrial, medical and hospitality gases has suffered due to lack-lustre economic activity. However, Afrox has plans to expand aggressively into Africa over the coming year. Opportunities abound, particularly in Angola’s oil industry, where Afrox already has a presence.
Afrox will also stand to benefit from supplying carbon dioxide to sub-Saharan Africa’s growing producers of soft drinks. The company, which currently has a presence in about 12 countries in Africa, is also looking to set up shop in burgeoning West African economies.
OPPORTUNITIES* In terms of dividend return, Afrox scores above competitor AECI. Its dividend yield is 2,65, indicating investors would receive a higher payout for their investment when compared with AECI (dividend yield: 1,92).
* Afrox supplies industrial gases and welding equipment to SA’s automotive sector, which may benefit the group’s future earnings. This sector has already shown signs of recovery but, more importantly, is headed for considerable expansion after three major car manufacturers committed a cumulative R9bn of investment in production facilities in SA over the past 18 months.
RISKS* Afrox profits are extremely susceptible to rand fluctuations and its most recent results for the six months to end-June 2010 are testimony to the havoc a strong local currency can wreak on the bottom line. Earnings declined by 13% to R354m from the previous interim period and the strong rand blamed for making Afrox goods uncompetitive in the export market.
* Afrox is unlikely to surprise its shareholders with a profit recovery in the second half of its financial year. Operating profit fell marginally in the interim period and the group’s management has advised no fireworks are expected at year-end.