WHERE TO INVEST: Warning signs on Afrimat’s losses were already visible, if you knew where to look

Once upon a time, in a market environment that now feels far, far away, Afrimat was a darling of retail and institutional investors alike. But this year, that fairy tale took a turn so dark it would make the Brothers Grimm proud.

This is a stock that peaked above R73 per share in mid-2024, having traded at roughly R33 before the pandemic struck. Investors who banked that wonderful journey by more than doubling their money must be feeling smug right now, since Afrimat’s share price has subsequently been smashed to pieces.

The stock is currently trading at about R31.50, having finally found some support after hitting the 52-week low of R25.20 at the end of August. That’s a long way down from where it was a couple of years ago.

In Afrimat’s own words in the latest trading statement: “Since listing in 2006, Afrimat has never faced trading conditions as challenging as those experienced during the six months ended 31 August 2026.”

Over the past 20 years Afrimat’s business has changed significantly, mainly through acquisitive activity to broaden the earnings profile of the group. But Afrimat’s reputation for having diversified earnings hasn’t shielded investors in the latest period. The trading statement reflects a terrible reality for investors: a headline loss per share for the six months to August 2026 of -55 cents to -60 cents.

This would come as a shock to anyone who has been looking at the trend in interim earnings. If we go back a few years we find that interim Heps ranged between 252.2 cents and 295.1 cents from 1H’22 to 1H’24. It then dropped to 53.0 cents in 1H’25, before partially recovering to 101.9 cents in 1H’26.

All of these numbers have one thing in common: they are positive. The latest period is a loss. So what on earth has happened here?

Not a Lafarge problem

It’s easy to point a finger at the Lafarge acquisition as the culprit. This deal was a major contributor to the dip in earnings in 1H’25. Although one wonders if management would do the transaction again if they had the opportunity to go back in time, the truth of it is that the Lafarge deal isn’t the primary driver of these losses.

If you look at the previous financial year as a whole, the signs of trouble were already there. Full-year Heps of 95.8 cents means that the second half of the year generated a loss of 6.1 cents per share. But because the market focuses on interim and full-year earnings, a critical trend like a swing into second-half losses tends to get buried by financial reporting conventions.

That loss has now accelerated on a sequential basis (i.e. into the first half of this financial year), which is why the latest interim period looks so awful.

The big problems in H2’26 were the Nkomati Anthracite Mine and the weak volumes in the iron ore business. Anthracite has been an issue in the latest period as well, but the trading statement places most of the blame at the door of the iron ore market – with both the export and domestic markets to blame.

On the export front, a stronger rand and higher shipping costs played havoc in this period, while average mine-gate revenue per ton fell by 16.4%. That doesn’t give the company much of a chance when mining cost inflation is visible across the broader sector. The domestic market didn’t buffer this export pressure, with the difficulties at ArcelorMittal being one of the major reasons for a 36.5% decline in domestic iron ore volumes.

To add to the pain in iron ore, anthracite still suffered in the domestic market, with the well-documented problems for the ferrochrome smelting industry affecting demand.

To show just how severe the impact of the pressure in iron ore and anthracite has been, we can look at the earnings on a three-year basis.

If you use the midpoint of the latest guidance to aggregate the earnings for H1’25 to H1’27, you’ll find total Heps of only 97.4 cents. This makes for a hideous comparison to the earnings from H1’22 to H1’24, which came to 810.7 cents in total!

Lessons learnt

The lesson here? Revenue may be diversified at Afrimat, but the impact of operating leverage in this business model means that trouble in just one or two operations can quickly ruin the group profitability story.

There are at least some green shoots in the trading statement. If you read the cement section carefully, you’ll note the reference to these assets incurring operating losses during the early part of the period.

This raises the possibility that the latter part of the period was profitable. We will only know for sure when detailed results come out.

The more meaningful highlight relates to the strong performance of the aggregates and fly ash operations. This was supported in part by the acquisition of the Lafarge quarries.

The aggregates segment is the largest contributor to group revenue (39% in FY26) and has been a strong source of profitability and expanding operating margins.

Another important point is that the narrative in the trading statement suggests that the first quarter was worse than the second, giving some credence to the share price’s recovery from the August lows.

Investors and traders alike are watching Afrimat closely. I have a small position in the stock, so I’m looking out for a sensible level at which to potentially add more as part of a long-term strategy. Although punters jumped into the stock ahead of earnings, I’m taking a more circumspect approach.

I’ll wait for the release of detailed results on 22 October, as I want to fully understand why the losses have accelerated. DM