Food producers’ stocks return to favour
bdlive.co.za - Jul 16th 2014, 11:35
Food producer stocks have made a strong run since late February, with sector giant Tiger Brands being among the largest gainers despite some negative announcements.
"In February, the food producers’ index was trading at a five-and-a-half-year low relative to the all share index. Investors may have identified this low point as a buying opportunity," Kagiso Asset Management analyst Victor Seanie said on Monday.
The food producer index has rallied 27% since February 27. The largest poultry stock, Astral Foods, has gained around 70% since late February — in doing so reaching levels last seen two years ago.
Although the poultry sector accounts for less than 10% of the food producers’ index, it has shown gains over the past few months as producers benefit from tariff protection and falling maize prices.
Meanwhile, Tiger Brands has bounced off its recent low of R244.44 at the end of February. Its shares closed at R303.47 yesterday.
This is despite the group having said it was writing off more than half of its initial investment in Nigerian subsidiary Dangote Flour Mills, while also calling off Kenya deals.
Other food producer stocks that have made strides, include sugar company Tongaat Hulett, which is up around 46% since late February, as well as Pioneer Foods, which has gained 33%, and AVI at 24% growth.
Investec Asset Management equity analyst Diane Laas said the food producer rally mirrored gains made by retail stocks. Consumer-oriented stocks in general had taken a battering from late January to late February after a surprise interest rate hike, but had since recovered amid what appeared to be a "more benign" rate environment.
The JSE’s general retailers’ index has added 28% since mid-February.
"We are still saying we are probably going to get another 25-50 basis point rate hike this year, maybe more towards the end of the year. That will turn sentiment on these stocks negative again," Ms Laas said.
Meanwhile, a number of company results across the sectors have been slightly better than expected in what is seen as a weak consumer environment.
Mr Seanie said that Tiger Brands’ results were "subpar, but they were not as bad as expected given the large losses in Nigeria".
Tongaat Hulett had reported improved earnings on higher volumes and Pioneer reported strong earnings growth from continuing operations. AVI’s trading update indicated revenue growth of 11.2% and earnings per share growth of more than 20% including capital gains and losses.
According to a poll among economists by Reuters last week, the South African Reserve Bank will wait until September before raising interest rates. Eighteen of the 31 economists polled about this week’s policy meeting expect the Bank to hold rates at 5.5% to favour an economy that struggled to grow in the first half.From DFM Publishers (Pty) Ltd
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