Omnia may pay special dividend after disposal, says analyst

Chemicals, fertiliser and explosives group Omnia has agreed to sell the majority of its stake in Umongo Petroleum, a supplier of lubricant additives, base oils, process oils and chemicals, for R1bn, boosting to the war chest of a group that eliminated debt in its year to end-March. It is still on the hunt for new businesses.

Group focus is on building its internal capacity as it gears up to drive the growth of its bio-agri and mining interests globally, CEO Seelan Gobalsamy told Business Day. While Omnia may return the cash to shareholders, it will at some point also make new acquisitions.

Small Talk Daily’s Anthony Clark said Omnia, which paid a R4 per share special dividend after the Oro Agri sale, is likely to pay a special dividend in the wake of the Umongo sale too.

“It is an elegant exit to a transaction, which way back in the day seemed to be at odds with what Omnia was as an agricultural, mining and chemicals business,” he said.

Omnia supplies products and services to the mining, chemical and agricultural sectors, and Gobalsamy, a former executive at Liberty Holdings, Stanlib and Old Mutual, has led a turnaround of the company’s fortunes since he joined in September 2018.

The group tapped shareholders for R2bn in mid-2019 as it grappled with a net debt pile of R4.4bn, almost twice its market value then. The value of the group has since risen to almost R11bn. Omnia had net cash of R1.8bn at the end of March, from net debt of R1.9bn in the prior year, bolstered by improved cash generation and R2.2bn in proceeds from the sale of the prized Oro Agri business.

That business fitted in with Omnia’s new strategic focus, but the group has said the offer price was too good to turn down.

“We’ve moved very fast from a spiralling debt position,” said Gobalsamy. While its Protea Chemicals business is not exactly core to the group, it is not actively looking to sell it, nor does it need to, he said.

Protea and Umongo make up the group’s chemical division, which in 2021 generated just under a quarter of revenue, and 17% of group operating profit.

Omnia is in a closed period, as it is set to release its first-half results in November, and said on Thursday it will consider its financial position at the end of its 2022 year.

Omnia received a boost by renewed activity in SA’s agriculture and mining sectors, with favourable rainfall and robust prices ensuring that farming was one of the few parts of SA’s economy to grow during the Covid-19 pandemic.

Prices of major SA commodities including iron ore and coal have reached record highs during the pandemic, when precious metal prices have also pushed to multiyear highs.

Current supply-chain shortages and logistical issues are a concern for the country, Gobalsamy said, but are benefiting the group, amid robust demand for fertilisers and explosives. “We are selling everything that we can make,” he said.

The group is set to sell 90% of Umongo to a subsidiary of Belgium-based Azelis, having acquired it in 2017 for R637m. It expects total cash proceeds of about R1bn upon closing, followed by additional payments of R86m to R105m if an option on the retained shareholding is exercised. The sale is still subject to approvals, including from competition regulators, which is expected to take two or three months.

Umongo is a supplier of lubricant additives, base oils, process oils and chemicals as well as technical solutions to lubricant blend manufacturers in Sub-Saharan Africa.

Omnia’s share price was 3.5% lower at R63.19 by Thursday’s close, but it has risen 7% since the group issued a cautionary announcement in late September. The share price has almost doubled since the start of 2020.