Is Afrimat cheap? – Moneyweb

Previously a market darling, Afrimat’s fall from grace has seen it pile on debt and steadily report lower and lower profits until the most recent trading update for H1:27 highlighted an expected incoming headline loss.

Some of this is clearly driven by awful global and local iron ore headwinds, as well as freight and fuel input costs, while some was from local economic pressures that saw furnace closures and other issues. For context, you can read the trading update published on 7 October.

Read: Afrimat faces toughest trading conditions since 2006 listing

I want to rather focus on whether Afrimat could hold value at these levels and how we can think about it.

As a commodity-driven, open-cast miner, Afrimat’s profits are sensitive to a range of inputs, from spot prices and exchange rates to volumes and operating costs.

From a valuation perspective, this means the group’s short-term profits and cash flows can change dramatically and any valuation mechanism that looks solely at ‘earnings’ as an input will itself be volatile (and arguably fairly useless).

While mineral resources are finite assets, and should thus be valued based on life-time value (such as discounted free cash flow), Afrimat’s various businesses include major operations that are arguably indefinite assets with continuing operations that complicate matters.

Read: Building and construction sector poised for better days?

For simplicity’s sake and to sidestep profit volatility, Afrimat’s valuation can be considered through the lens of its (more stable) balance sheet (see chart below).

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Against a rolling price-to-book measure that takes into account the good and bad times, Afrimat is certainly trading towards the low end of its historical band and basically one standard deviation below its 20-year average of 2.4 times (currently at around 1x in the market).

Afrimat’s price-to-book ratio (x) versus average and standard deviations

Source: Koyfin (8 October 2026)

By this measure, Afrimat’s valuation is cheap.

But given elevated debt in the group and incoming headline loss, we do need to consider two things here:

Could the group’s debt become a problem, and
Could continuing losses eat into the group’s equity?

At the end of FY25, Afrimat’s gross debt totalled R2.6 billion (net debt was R2.1 billion) or around half of the group’s equity value (R4.5 billion).

Despite the incoming H1:27 headline loss, Afrimat expects to record, management reports that (partly through disposals of some assets/stockpiles and partly through operational cash flows) debt has been repaid to lower this ratio to below 50%.

This implies that despite the accounting loss, the group’s operations remain cash-generative and debt is steadily being managed down – and the group is actually steadily becoming less risky.

Add to this the fact that Afrimat continues to look to ‘realise’ or ‘unlock’ the value of its Afrimat Cement business (acquired as part of the R1 billion acquisition of Lafarge).

Listen: Afrimat’s strategic moves in a shifting commodity market

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While we do not know the ‘when, how or how much’ part of this value unlock strategy, we can start to get a sense for the underlying potential.

While Afrimat Cement remains loss-making, it did report 12-month rolling sales of R1.56 billion in FY25.

If we use PPC’s price-to-sales ratio as a yardstick (less a 50% discount for various reasons), it implies that Afrimat Cement could be worth between R0.9 billion and R1.2 billion (for 100% of it, assuming no control premium).

PPC’s price-to-sales ratio (x) versus average and standard deviations

Source: Koyfin (8 October 2026)

In other words, if Afrimat can realise a reasonable value for its Cement business (in full and in cash, ignoring taxes or transaction fees) of around R1 billion, then its acquisition of the Lafarge business for R1 billion in totality was basically free (ignoring capital spent fixing the assets since ownership).

That said, Lafarge’s purchase price is a sunk cost, and the real question is what this does to Afrimat’s balance sheet now.

Well, dropping debt by R1 billion would almost halve it and get it to an extremely comfortable 25-30% debt-equity ratio. This would not just almost halve the group’s interest bill but also remove the around R100-200 million operating loss the Cement business is reporting in its results (in other words, the group would actually be more profitable after this sale).

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So debt seems manageable, but only if the group’s losses do not sustain indefinitely.

On that note, Afrimat’s various segments have diverging prospects but none of them look like long-term train-smashes.

The Aggregates segment is actually doing very well and has grown operating profit by 36% CAGR (compound annual growth rate) since FY22.

The pressure is really in the Bulk segment (iron ore and anthracite) – but recent additions of manganese exports and better-quality iron ore resources coming online could aid a recovery here, irrespective of whether these segments’ macro headwinds turn around (recent rand weakness may also aid here).

Industrial Minerals is likely to bumble along while Future Materials and Metals is developing and could become a major future profit driver.

Thus, while (other than Aggregates) the prospects for near-term earnings recovery are not amazing, they are also not awful.

And with debt seemingly under control and the event upside of unlocking Cement’s value, Afrimat’s current price-to-book ratio highlights the potential value.

And perhaps the smart money is starting to see it this way: despite Afrimat’s dire trading update, the initial collapse in the share price on the day of the Sens release was met with heavy buying and saw the share price close the day basically flat.

* Keith McLachlan and portfolios managed by him may hold shares in Afrimat.

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