As a global specialty alloy supplier to major corporations in the automotive, luxury consumer goods, nuclear, oil and gas, and aerospace sectors, Afarak (HEL:AFAGR) is enjoying access to a large growth runway. The company offices are in London, Helsinki, and Malta and it operates mines and plants in South Africa, Turkey and Germany, giving it substantial diversification.
Furthermore, it sells its products through its sales and marketing company – Afarak Trading – in markets across the globe. The company uses Afarak uses economies of scale, operational specialisation, and advanced technology as competitive advantages to minimise environmental and operational error and inefficiencies. It has invested heavily in technological innovation such as the shaking-tables project alongside various projects and initiatives designed to increase and create value for local communities that host its operations.
Additionally, thanks to these investments Afarak is able to produce unique alloy mixes tailored to their customers’ specific industry needs. To maximise value and efficiency, Afarak employs a vertically integrated business model where they extract, process, market, and trade specialised alloy products.
While they have a capital-intensive business that requires considerable operational leverage, their broadly diversified customer base helps to improve cash flow stability.
Extraction quality control and efficiency are strong at Afarak thanks to the fact that they own and operate their own mines. Furthermore, their world class research and development laboratories and personnel help drive innovative improvements across their operations, resulting in new and improved specialty alloys for customers and more efficient and consistent processing.
The company leverages its industry insight, knowledge, and global network to sell its products across the globe to an ever-growing list of industries. Meanwhile, its logistics platform enables them to deliver high quality customer service while also managing their inventory efficiently.
Recently, the company’s South African assets have presented considerable challenges for the company due to lower average ferrochrome benchmark prices, technical faults in processing equipment, weak geological formations, and lower quality ore.
But looking ahead, the company’s main challenges to maintaining strong growth will be margin protection in the face of rising material, fuel, and labor costs, maintaining operational efficiency as new products and clients are added to the business, continuing to allocate capital effectively into strategic investments in order to sustain growth, and achieving its “zero harm” and local community development goals as it seeks to minimise costly operational and environmental problems by building mutually productive relationships with the communities it operates in and ensuring proper environmental measures are employed.
The primary strategy for returning the company to growth involves strategically investing in improving and growing mines and plants in order to reduce technical challenges and grow output and quality.
Conclusion: Though the market remains volatile and challenging for Afarak, the company remains focused on cutting costs and improving operational excellence in preparation for when pricing will return to historic norms. In the meantime, now is likely a good time to buy shares while sentiment is poor and pricing is suppressed.
Disclosure:
I have no positions in any of the securities referenced in the contribution
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This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.
Samuel S.