Bumper season for Omnia’s fertiliser business

By Victoria Ashwin

The conflict between Russia and Ukraine is having a major impact on global food security and the supply of key agricultural inputs and fertiliser. Fertiliser prices have risen in response to the war as Russia and Belarus account for 40% of fertiliser exports. To ensure availability for its farmers, China has suspended the export of fertilisers. This presents an opportunity for Omnia to expand its distribution footprint to international markets. The group is already seeing higher volumes in Brazil and Australia.

BizNews spoke to Anthony Clark, independent analyst for Small Talk Daily Research. He is bullish about Omnia’s fertiliser business both internationally and locally. The company is well-placed to benefit as it can command higher fertiliser prices and has high levels of fertiliser inventory.

Internationally, the company has significant opportunity within the humate business in Australia. Humates are a form of organic fertiliser that are becoming more widely used in sustainable farming with the likes of New Zealand and Netherlands already putting limits on the amount of nitrogen farmers can use to grow crops.

Clark says: “Margins are 25% within the humate business compared to 11% for normal fertilisers. The business only contributes 5-10% of revenue but margins are more than double. If you have a natural, organic product that is in demand, the rating you get internationally is significantly higher. This combination of factors will have a leveraged effect and can be significant if they can grow that business. More specifically, the last two companies Omnia sold, namely Oro Agri and Umongo Petroleum, were both sold to European private equity companies.” This makes the agricultural division attractive to an international audience should it look to sell these businesses.

Omnia is a diversified chemicals group that supplies chemicals and services to the agriculture, mining and chemical industries. A large portion (55%) of the company’s revenue is driven by the agricultural business, which manufactures fertiliser and other Biostimulants used globally to improve soil health, crop and production yields.

Source: Google Finance and Omnia Financial Report 2022

Despite the myriad challenges in the SA economy, Omnia boasted a 40% increase in operating profit to R1.6bn, driven by higher volumes in agriculture and mining within South Africa. Furthermore, it was also able to declare a special dividend which saw the total dividend payout increase to R1.3bn to shareholders. The increase in share price reflects the success of management’s turnaround plan.

Revenue growth in the South African agriculture sector remains strong, up 57% year on year. Clarke believes Omnia will benefit from another bumper season.

“Domestically, we are in our fourth year of excellent weather in South Africa which is an absolute abnormality. Wetter weather has enabled farmers to plant earlier, which means they can harvest earlier. We have had three good years of excellent crops, the maize harvest has been between 14.5-16 million tonnes in the last two years. About 2.75m hectares of maize has been planted which needs fertiliser to grow. The single biggest cost in terms of a hectare of field crop is fertiliser. The inflationary cost for fertiliser is between 40 and 65%. ”

However it has become extremely difficult to import fertiliser locally as the recent floods in Durban have left infrastructure at the main port damaged and unable to process imports and much of the imported fertiliser stock destroyed. According to Clark, ‘If you have a domestic company, like Omnia, which produces its own fertiliser and a lot of its own agricultural inputs and has availability of fertiliser to meet farmers needs you can stand to make lots of money.”

However looking to the rest of Africa, the exposure to Zimbabwe remains a concern as hyperinflation continues to ravage profits. The business reported an operational loss of R129m down from a profit of R364 in the previous year.

Source: Omnia Financial Report 2022

The mining segment, through BME and Protea Mining Chemicals, provides bulk explosives and blasting agents to the mining industry. The sector showed a strong performance in SA with revenue up 49%,  driven by high sales volumes combined with strong commodity prices. Joint ventures in Indonesia and Canada will support growth in international mining explosives markets. 

The chemicals division is comprised of Protea Chemicals, which is the largest chemical distributor and manufacturer in SA. The division has undergone a strategic repositioning which resulted in the disposal of Umongo Petroleum for R1bn.

Supply chain disruptions and high input commodity prices along with the ongoing Russia-Ukraine conflict continue to pose a significant risk but the board has chosen to manage cash conservatively with a balance of R2.4bn.

Source: Protea Chemical’s Website

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