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South African Small-Cap Industrials Offer Investors a Unique Opportunity

4 min Read May 23, 2024 at 2:51 PM UTC

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Contributed by Chipo Muwowo, Founder of Capital Markets Africa.


  • SA small-cap Industrials enjoy strong earnings potential
  • Some firms have completed judicious acquisitions in recent years
  • Stock prices remain attractive despite significant increases in their value

African equity markets offer investors great promise. This is even though most African listed companies don’t appear on leading, global frontier and emerging market indices.

On the Johannesburg Stock Exchange (JSE), Africa’s largest and most liquid stock exchange, one sector that deserves more attention from investors is the small-cap industrials sector.

In this short piece, we highlight three stocks that could provide investors with a route into South African equities, perhaps for the first time. 

Why?

SA industrials enjoy strong earnings potential driven by diversification and good asset management. Some firms have completed judicious acquisitions at home and abroad in recent years, and stock prices remain attractive despite significant increases in their value.

Afrimat Limited (JSE: AFT)

Afrimat is a mining and materials company listed on the Johannesburg Stock Exchange. 

The company supplies a broad range of products: construction materials such as aggregates, bricks, and ready mix concrete; industrial minerals such as lime and lime products; bulk commodities such as iron ore and anthracite; future materials & metals such as phosphate, vermiculite, rare earth,s and green construction materials.

In addition, Afrimat Mining Services offers full pit-to-port solutions to the mining, construction, and quarry industries throughout Southern Africa.

Last year, the company generated revenues of ZAR2.8 billion (about $150 million), and operating profit was up 18.8%. CAGR Diluted EPS for the previous five years is up 21.47%.

Last month, Afrimat had its bid to acquire the South African operations of Lafarge, the global cement manufacturer, approved by the Competition Tribunal. 

Afrimat CEO Andries van Heerden said of the deal, “It will increase [our] offering in the construction materials space, by expanding the Group’s quarry and ready-mix operations nationally. Additionally, access to the fly ash operations provides a foothold into the cement extender market. The grinding plant will allow Afrimat to grind various materials as value-added products for our current and new customers. In contrast, the cement kilns allow the Group to enter the cement value chain competitively.”

Hudaco Industries Limited (JSE: HDC)

Hudaco specializes in the importation and distribution of a broad range of high-quality, branded automotive, industrial, and electronic consumable products (mainly on an exclusive basis) for the South African and wider Southern African region.

It primarily supplies the consumer markets with stand-by and solar batteries, cooking and heating products, automotive spares and accessories, and more. Under engineering consumables, it supplies diesel engines, hydraulic and pneumatic equipment, electrical cable accessories, and more.



Over the years, the firm has been acquisitive. Last year, it bought the businesses of Brigit Fire (“to invest in an industry with growth potential and to further diversify the revenue stream”) as well as Plasti-Weld (“as a bolt-on acquisition for Astore Keymak, our thermoplastic pipes and fittings business”).

Last year, the company generated revenues of ZAR2.46 billion (about $132 million), and operating profit was up 23%. CAGR Diluted EPS for the previous five years is up 26.27%.

This was despite significant macroeconomic challenges – “chaos at South African ports impacting the supply chain, the impact of unprecedented levels of load-shedding, and rand volatility and weakness increasing cost of inventory,” its annual report noted.

Argent Industrial Limited (JSE: ART)

The group sells and trades manufactured steel and steel-related products such as metal gates, railings, and shutters. It owns over 20 vertically integrated subsidiaries in South Africa, the UK, and the US while it sends exports to over 35 countries globally. The Argent group of companies also includes several jet refueling and fuel storage businesses.

In 2021, it acquired South Africa-based American Shutters, a supplier of “a stylish door and window shutter security system” for ZAR57 million. A year earlier, it acquired UK-based Partington Engineering, a supplier of bespoke trolleys for both the traditional and e-commerce retail sectors, for GBP3.1 million.

Last year, the company generated revenues of ZAR2.46 billion (about $132 million), and operating profit was up 23%. CAGR Diluted EPS for the previous five years is up 26.27%.

In a note to investors last year, Rudi van Niekerk of fund manager Desert Lion Capital said, “I strongly believe that the market has been wrong on this one for a while now. Argent is not a hot AI stock. Maybe that is one of the reasons it is ignored by the market. Yet, as a real-world- economy stock, Argent’s earnings growth would make many a tech stock blush.”

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This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Articles do not reflect the views of DABA ADVISORS LLC and do not provide investment advice to Daba’s clients. Daba is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.

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