AECI’s shares rise more than 2% on potential property sale

JSE-listed explosives and specialty chemicals company AECI’s share price climbed 2.01% to close at R115.90 on Monday after the company said it had entered into discussions regarding the sale of the bulk of its property assets in Modderfontein‚ Gauteng.

While AECI (AFE) did not disclose the details of the proposed transaction‚ analysts say the deal is likely to see the company dispose of more than half of its property portfolio‚ and a deal this size had come earlier than expected.

AECI’s substantial property assets are held in the company’s wholly-owned subsidiary Heartland‚ which has predominantly industrial‚ office and land holdings across Gauteng‚ KwaZulu-Natal and the Western Cape.

The company‚ which said it could not yet provide further details‚ said the property assets “are surplus to the AECI group’s operational requirements”.

Avior Research analyst David Lerche said the deal would “bring forward the expected cash flows from the realisation of the land”.

Lerche said the land was no longer required for AECI’s operations. The company’s large land holdings were the legacy of earlier times when much more space was required around explosive factories.

“The plan has always been to sell the land over a number of years but it seems they have found a buyer at presumably an appropriate price‚ to take a larger chunk.

“So instead of having to wait a number of years to see that cash‚ investors are likely to see it earlier‚” Lerche said.

An analyst who could not be named in line with company policy said the land was attractive for mixed-use‚ long-term developments.

AECI had “put in a lot of work in terms of ensuring that the infrastructure is there and services are available for development”‚ the analyst said.

The company had also rehabilitated some of the land which was the site of the old explosives plant.

As AECI only required a much smaller piece of land for its operations‚ the surplus land could “generate healthy returns” for the company.

The analyst said developments would take years to complete at the site and would require “a sizeable capital investment given that on day one there will not be a big income stream from it”.

However in the medium and long term‚ the property was attractive and was well located given the punted development of a new Gautrain