X

This is not a paywall.

Register for free to continue reading.

The news sucks. But your reading experience doesn't have to. Help us improve that for you by registering for free.



Please create a password or click to receive a login link.


Please enter your password or get a login link if you’ve forgotten


Open Sesame! Thanks for registering.

First Thing, Daily Maverick's flagship newsletter

Join the 230 000 South Africans who read First Thing newsletter.

We'd like our readers to start paying for Daily Maverick

More specifically, we'd like those who can afford to pay to start paying. What it comes down to is whether or not you value Daily Maverick. Think of us in terms of your daily cappuccino from your favourite coffee shop. It costs around R35. That’s R1,050 per month on frothy milk. Don’t get us wrong, we’re almost exclusively fuelled by coffee. BUT maybe R200 of that R1,050 could go to the journalism that’s fighting for the country?

We don’t dictate how much we’d like our readers to contribute. After all, how much you value our work is subjective (and frankly, every amount helps). At R200, you get it back in Uber Eats and ride vouchers every month, but that’s just a suggestion. A little less than a week’s worth of cappuccinos.

We can't survive on hope and our own determination. Our country is going to be considerably worse off if we don’t have a strong, sustainable news media. If you’re rejigging your budgets, and it comes to choosing between frothy milk and Daily Maverick, we hope you might reconsider that cappuccino.

We need your help. And we’re not ashamed to ask for it.

Our mission is to Defend Truth. Join Maverick Insider.

Support Daily Maverick→
Payment options

Tiger Brands loses its teeth and Aveng takes a plunge

DM168

PHANTOM SHARES

Tiger Brands loses its teeth and Aveng takes a plunge

(Photo: Gallo Images / Luba Lesolle)

Tiger Brands is still feeling the effects of its canned vegetables recall in July 2021.

Deep-value stocks can quickly become deeper-value stocks if the price keeps falling. It’s anyone’s guess in which direction Tiger Brands will head from here, but I’m worried, based on the latest update.

Management is still being distracted by the ongoing listeriosis class action and the aftermath of the canned vegetable recall. This includes a contractual claim against the can supplier and the process of dealing with insurers, who have so far paid out 30% of the total claim for the recall.

 Shareholders need the management team to be able to focus fully on the task at hand, as Tiger is struggling with market share in key categories (such as bread) and inflation, which quickly separates the strong brands from the weak. Not every producer will be able to push cost increases through to customers.

Grocery retailers are the gatekeepers and will try everything possible to limit the price increases to those consumers. There’s also the threat of private label strategies, a major focus for retailers, as it improves their margins and brand equity with customers.

Tiger Brands hit a fresh 52-week low on 17 February and it’s not clear to me that the bottom is in.

Truworths’ big numbers

The previous Truworths sales update turned out to be a red herring, as it made things sound far worse than they are. Full earnings were released on 17 February and the share price closed 9.6% higher on the day.

Sales growth was just 2%, which isn’t great by any measure, but a healthy increase in margins drove a sharp increase of 32.5% in operating profit. The clothing game is all about gross margins, with promotional and clearance sales resulting in much higher variations than we see in grocery businesses. A 210bps increase in gross margin from 51.5% to 53.6% helped to drive an exceptional 600bps expansion in operating margin.

UK business Office posted strong sales growth (8.1% in GBP) and has accelerated with a spectacular 41% increase in the first seven weeks of the new period. Truworths Africa has posted 5% growth in recent weeks. Suddenly, everyone is talking about Truworths.

Spar is fighting back

Spar may end up being the reminder the market needs that valuations are critical in a stock picker’s market. Although Shoprite is still ahead so far in 2022 (+9.5% at time of writing), Spar isn’t trailing by much with a +7.9% performance. Pick n Pay is a long way back, down -3.75%.

After releasing a concerning update towards the end of 2021 with major disappointment in Poland, Spar quickly became the value stock in the sector. There are solid reasons why it should rebound, ranging from strong growth in TOPS and resilience in Build it because of the return to work that many South Africans have made. Spar is a convenience shopping destination, positioned in neighbourhood centres that are typically quick stops on the daily commute. This was a painful strategy during lockdowns, but those days are behind us (touch wood immediately!).

The Irish business is in food service (so a recovery in restaurants helps) and the Swiss business is performing decently. Poland is where the risks lie, but there’s a positive narrative around retailer loyalty (getting franchisees to buy from the Spar wholesaler) and that region still offers great growth prospects.

The latest update brings certainty around the dividend policy, with the payout ratio halved to create breathing space on the balance sheet for growth. Income funds may already have reduced exposure to Spar, leaving investors with total return mandates (versus a dividend focus) to take a view on the story.

Distortions with Aveng(eance)

Most accountants will tell you that International Financial Reporting Standards fail miserably at times in achieving the objective of creating financial reports that are useful to stakeholders. The latest update from Aveng is a perfect example.

Despite including positive commentary about the operating performance of the three major businesses (McConnell Dowell, Moolmans and Trident Steel), the financials told a different story. Or did they?

In the six months to December 2021, diluted headline earnings per share tanked by a spectacular 95%. That sounds catastrophic until you read deeper and find that the accounting treatment of Trident Steel is a major contributor here. It has been reclassified as a continuing operation, as Aveng is no longer able to meet the criteria to recognise it as a discontinued operation.

This has created massive swings in lines such as depreciation, impairments and fair value gains.

The real story lies in the cash flows, with all to be revealed on 22 February when Aveng releases full results.

Shareholders are licking their wounds after a sell-off of more than 15%. Those who bought the extreme dip on 14 February are smiling, up nearly 30% in a matter of days! DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

No Comments, yet

Please peer review 3 community comments before your comment can be posted