AFARAK GROUP, MARCH 7th 2014

Afarak Group is a company with a troubled stock market history.  In the four years since it floated on the LSE its shares have drifted down from 160p to 32p. Thus it qualifies as a return reversal share.  It also scores 8 out of 9 on Piotroski factors (at a pinch).  Market capitalisation: £75m

Afarak owns chrome ore mines in South Africa, Turkey and Zimbabwe, and chrome processing facilities in South Africa, Germany and Turkey. Until five years ago it was a Finnish forestry and house building company.  New directors with experience in chrome sold off the old assets and bought chrome assets.          

Subsequently it only made profits in one year (2011).  The last dividend was in 2009. 
However the directors ‘firmly believe that ferrochrome will be in high demand in the long term’ and so are investing a great deal in more processing plant in South Africa with the expectation of ‘higher profit margin’ after Q3 of 2014.  It currently digs out over 0.5m tonnes pa from a total estimated ‘ore resources’ of 61.3m tonnes. 

Capital expenditure in the year to Dec 2013 was €10.6m.
Revenue: €135.5m (up 5.4% on 2012)
EBIT: -€8m (better than 2012’s -€16.8m)
Cashflow: €13.8m
No dividend
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Piotrioski factors
1.     Profits?                                                                                              No
2.     Positive cash flow?                                                                           Yes  
3.     Positive year-on-year ROCE?                                                           Yes, if you count profits being less negative
4.     Cash flow greater than profit?                                                           Yes
5.     Positive change in debt to total assets ratio?                                    Yes (virtually no debt)
6.     Positive year-on-year current ratio change?                                      Yes
7.     Absence of equity issuance in year?                                                  Yes
8.     Positive change in profit margin over year?                                       Yes, if you count that the loss is less
9.     Positive change in sales to total assets ratio?                                    Yes