Tiger Brands set to bounce back in 2019
By Siseko Njobeni - Jan 15th, 11:47
Tiger Brands, which lost R1.4bn in revenue in financial 2018 due to listeriosis, looks set to bounce back from the deadly outbreak, with revenue and earnings to rise steadily in the next three years, according to brokerage firm Arqaam Capital.
In 2018, the owner of the Koo, Oros and Tastic brands was preoccupied with the consequences of listeriosis, which killed more than 200 people. The outbreak compounded what was already a tough operating environment for the listed packaged-goods company. Tiger Brands still faces litigation for listeriosis-related deaths.
Like other consumer firms in the JSE food producers index, Tiger Brands battled low disposable income, which stifles household expenditure.
The effect of the listeriosis outbreak had already been priced in, Arqaam said in a report written by analysts Detlef Winckelmann and Robin Kowalsky.
It said losses related to the listeriosis outbreak could amount to R4.7bn, or R29 a share, which was “less than the loss in market value — R10bn or R65 a share — following the listeriosis announcement, through to one week after the last listeriosis update implying that the potential losses have been fully priced in [in] the share price”.
Speaking after the release of Tiger Brands’ full-year results in November, CEO Lawrence MacDougall said the listeria crisis had consumed a significant amount of Tiger Brands senior management’s time and attention “and business performance suffered as a result of this special attention”.
Tiger Brands also grappled with rand volatility, drought in the Western Cape and increased competition during the 2018 financial year.
But Arqaam said it expected Tiger Brands to grow strongly — but off a low base — in the 2019 financial year. Arqaam said it expected Tiger Brands’ share price to rise to R303 within 12 months.
According to Arqaam, revenue is likely to increase from R28.5bn to R34.9bn in 2021, while earnings per share are expected to hit 21.31c in 2021, compared to 15.87c in 2018. It said headline earnings, which slumped 26% in 2018, could increase 16% in 2019 and 4.2% in 2020.
“We pencil a high single-digit revenue [growth] of 8.4% in 2019, following a contraction in 2018. We still expect revenue to grow by 8.4% in 2019 mostly due to Enterprise restart, despite continued selling price deflation, pressure on retailer volumes, retailers pushing back on food producer’s pricing to maintain margins, and a constrained consumer environment,” it said. Tiger Brands’ revenue was down 9% in 2018.
But Arqaam said unfavourable market conditions were likely to persist “in the medium term”, with wheat and maize price inflation expected to increase because of declining global inventories, lower rainfall and higher costs of production in SA.
Real disposable income growth looked set to remain unlikely in 2019 due to limited employment growth, inflation of 4.7%, and a likely rate hike of 25 basis points in the first quarter, it said.
Tiger Brands was unlikely to recover the costs from the consumers. “A rising cost inflation environment is unlikely to result in strong earnings growth in the [short-to-medium term], as we do not believe that rising costs can be easily passed on to the consumer,” it said.
SA has experienced a period of sustained low economic growth, rising unemployment rates, high inflation and limited real disposable income growth. “In our view, this has driven consumers to become increasingly price conscious, with increased cherry picking,” it said.Business Live
Inflation accelerates slightly in May
19/06/2019 - 11:24
Inflation accelerated slightly to 4.5% in May, giving impetus to calls for an interest cut in July.
Abercrombie dives most since 2000 as sales growth starts to wane
03/06/2019 - 09:00
For apparel retailers, the plot has to unfold just right for investors to buy into the narrative. And by the market’s reaction, they clearly did not stick to the script.
Mr Price Group's shares rally on annual results
31/05/2019 - 10:16
Mr Price Group’s shares opened sharply higher after the company raised its annual dividend thanks to better earnings.
Pepkor says market-share gains boosted half-year earnings
29/05/2019 - 09:34
Pepkor, which owns the Pep and Ackermans brands, says sales and earnings rose in the six months to end-March thanks partly to market-share gains in clothing and merchandise.
South Africa’s economy may be nearing the end of its slump: economist
29/05/2019 - 09:07
After years of slow grow South Africa may be over the worst and could start seeing growth by 2021/22 according to leading economist Mike Schüssler.