Lonrho: City analyst upbeat on latest acquisition

Lonrho (LON:LONR) deal to acquire AFEX Group will complement its Kwikbuild business and make it more competitive when tendering for larger contracts across Sub Saharan Africa, according to Panmure Gordon.

The company unveiled the deal to buy the secure accommodation specialist for a maximum of US$8 million. The initial payment will be US$3 million followed by a capped earn-out staggered over the next two years.

In 2009 AFEX posted pre-tax profits of US$1.6 million on turnover of US$15.9 million and had net assets of US$8.7 million. As well as secure accommodation, the company also provides management, catering and housekeeping services to clients. It has bases in Kenya and Southern Sudan.

Lonrho is essentially a growing Africa-focused conglomerate with assets spanning agriculture, infrastructure, transport and support services. It even has its own airline and a chain of hotels.

The AFEX business will be added to the infrastructure division which also includes the complementary business unit KwikBuild, which manufactures and supplies pre-fabricated buildings across Africa. Kwikbuild’s pre-fab’ buildings are typically used as classrooms, medical clinics, accommodation units, low cost housing, workers camps and offices.

Damian McNeela, analyst at Panmure Gordon, reckons the deal will add £6 million revenue during 2011 although his profit forecasts are unchanged. The analyst rates Lonrho as a ‘buy’ with a 23 pence a share target.

“AFEX currently owns and manages secure accommodation across Kenya and Southern Sudan, providing services such as catering and laundry. 

“The management team founded the business and have excellent relationships with NGOs such as the UN and other large multi-national organisations and are to be retained for at least the next two years.

“The acquisition of AFEX should allow Lonrho to be able to provide fully supported camp solutions to large multi nationals and NGOs operating in Sub Saharan Africa and should complement its existing Kwikbuild business.” 

Lonrho chairman David Lenigas said:  “We are delighted to have acquired AFEX. It brings established access to the rapidly developing Southern Sudan market which, following the successful referendum (to become independent) last month, has great potential. 

“AFEX also services the logistics and base requirements of the growing demand from oil, gas and mining companies throughout East Africa. AFEX installs and manages accommodation, IT and building solutions, and is a natural fit with these existing capabilities within the Lonrho Group.”

This latest acquisition will help bolster the firm’s impressive growth. Just last week Lonrho revealed a strong set of first quarter results, driven by a 21 percent year-on-year increase in group turnover.

In the three months to 31 December 2010, Lonrho’s turnover increased to £27.6 million

The improved performance saw the company grow earningsby £2.7 million. It reported first quarter earnings (EBITDA) of £1.4 million, compared to a £1.3 million loss in the same period of the previous year.

It ended the period with (net) assets worth £124.5 million and £34.3 million cash in the bank.

Overall the company said it has continued to show strong growth with the continuation of trends shown throughout 2010. It also stressed that a number of exciting developments will further improve the group's performance in the coming quarters.

“During the coming quarters the Group will continue developing all of its businesses in order to meet demand. In addition to this, the Group will continue to look at strategic acquisitions which will strengthen the business divisions”, the company said.