Cambria Africa: Closing of Malawi Acquisition, Integration Underway & Further Progress

Cambria Africa has announced completion of the acquisition of leading Malawi chemicals distributor, Chemicals & Marketing (C&M), by its value added chemical distribution subsidiary, Millchem. It also informed the market that the integration of C&M is underway and making good progress. The Southern Africa focussed investment company has also revealed that Millchem has received additional key regional supply and distribution agreements. We are encouraged to the see the synergy benefits already being achieved, and see this announcement as further testament to efficiencies Cambria is able to achieve across its portfolios. We prefer to be prudent and keep our forecasts unchanged, and after taking into account the new shares issued in relation to the acquisition, we reiterate our stance of buy, with a target price of 13.86p. 

Synergies Already Being Achieved

Further to the announcement of 27th May regarding the acquisition of C&M, Cambria has confirmed that legal completion of the acquisition has now taken place. Examples of the multiple synergy opportunities already being achieved include: the production of products locally by one of Millchem’s trusted customers rather than being imported from abroad; a significant reduction in the landed cost for various commodities due to the Millchem purchasing pool; and access to Millchem’s growing list of leading suppliers.

Additional Key Regional Supply & Distribution Agreements

Millchem also announced it has now become distributor for a number of leading products in the beverages industry including the Polyclar beer clarifier from Ashland Inc. (NYSE:ASH), edible oil purification product Tonsil from Clariant (SIX:CLN) and Celatom; beverage, sugar and edible oil filter aids from EP Minerals LLC.

Valuation

Using the DCF as our preferred method of valuation, and taking into account the new shares in relation to the acquisition of C&M (5,500,00 new ordinary shares), we have derived a target price of 13.86p (previously 14.63p) based on the business alone. We have associated no value for the firm’s Southerton properties, which have been valued at up to $1m or 0.62p/share. We see the settlement of the legal claims and possible sale of the firm’s Leopard Rock Hotel as potential drivers of the shares in the short/medium term. Key risks to our forecasts relate to the execution of Cambria’s growth plan and the improvement in the Sub-Saharan Africa region taking longer than expected.