Hulamin foiled by low demand and high costs (and Eskom)
Investors slam share price of aluminium semi-fabricator and exporter after downbeat forecast by chairperson
Aluminium semi-fabricator and exporter Hulamin ended the week on a low as the stock lost 6.49% on Friday, the largest one-day fall in more than a month. Hulamin, spun out of Tongaat Hulett in 2007, slumped 10.67% for the week.
Chairperson Thabo Leeuw’s statement to shareholders on Wednesday was said to have triggered the selloff as he alluded to several factors that would affect the company’s profits in the first six months of its financial year.
“The chairman’s statement was a profit warning. That is why the share price has fallen,” Chris Logan of Opportune Investments said on Friday.
In the statement, Leeuw said: “Hulamin trades in more than 50 countries worldwide, our largest markets after SA being US and the EU. Volatility in these core markets has made it difficult to maintain a balance in our profile of orders to suit Hulamin’s specific and available product manufacturing capacity.”
Leeuw said inconsistent electricity supply had resulted in Hulamin’s productivity declining to levels last seen in 2016 and 2017.
“Prices for Hulamin products have softened in the US in recent weeks, most notable in heat-treated plate. Automotive demand, both locally and internationally, has also softened,” Leeuw said. He said lower margins in the US are likely to hurt profits in the first half of the year.
Logan was critical of the company’s ability to contain costs. “They have a cost-control problem even though they say they are a low-cost producer,” he said.
For a company its size, Hulamin has a bloated board. “Anglo American has 12 directors. But a relative minnow with a market capitalisation of approximately R1.3bn has 14 directors,” Logan said. In the 2018 financial year, the nonexecutive directors alone cost the company R5.1m.Hulamin said on Friday that, in light of the pressure on selling prices, it would focus on cost reduction and improving operating efficiencies. It said manpower, energy and materials are the main components of its manufacturing cost base.