Agusto & Co. upgrades the rating assigned to African Foundries Limited to “Bbb+“ and attaches a stable outlook.
This rating expires 30 June 2023.
Agusto & Co. hereby upgrades the rating assigned to African Foundries Limited (“African Foundries”, “AFL” or “the Company”) to “Bbb+” to reflect the improvement in the Company’s financial condition evidenced by its good and sustainable profitability (upheld by the continued expansion in production capacities and AFL’s strong ability to pass on cost increases to customers), the Company’s satisfactory cash flow as well as moderate leverage position. The rating is further enhanced by AFL’s leading position and strong brand equity in the Steel Manufacturing industry as well as its stable, qualified and experienced management team. Furthermore, the assigned rating takes into cognisance the ongoing backward integration program through the direct reduced iron (DRI) project which is expected to significantly reduce reliance on scrap metals, boost the Company’s operational efficiencies and profitability upon completion. However, the rating is moderated by the Company’s concentrated ownership structure, corporate governance that requires further strengthening particularly with the composition of Board committees, `inadequate working capital, exposure to foreign exchange risks on imported spares and equipment, as well as the global supply chain disruptions elicited by the ongoing Russian-Ukraine conflict, with potential adverse impact on equipment and spare parts sourcing.
African Foundries Limited is a leading steel manufacturing company in Nigeria. The Company is part of African Industries Group (AIG), with several business interests in Nigeria. AFL has one of the largest fully integrated steel manufacturing plants in Africa, with the capacity of producing varieties of steel products including steel billets, reinforcement bars and cold-drawn steel wire rods. The Company’s steel manufacturing plants are located in Ogijo, Ogun State, with an installed melting capacity of 330,000 metric tonnes per annum (MTPA) and a rolling capacity of 300,000 MTPA1 as at 30 June 2022.
The opinions expressed in this rating release do not represent investment or other advice and should therefore not be construed as such. Visit www.agusto.com for further information.