The Finance Ghost: SA’s food producers hold steady despite cost pressures

The Finance Ghost: SA’s food producers hold steady despite cost pressures

RFG Holdings, enjoying excellent international demand for its canned peaches, has achieved revenue growth of just over 21%; Lancewood is Libstar’s big cheese.

Here’s a fun fact about Greece: the country is the largest exporter of canned peaches. Last year’s crop failed, opening the door for RFG Holdings to enjoy excellent international demand for its canned peaches.

Input cost pressures on basic commodities, however, are making each can more expensive. Food producers are struggling to maintain margins.

RFG Holdings achieved revenue growth of 21.2% for the 11 months to August. The shares closed 8.4% higher on the day.

Moving on to Libstar, the star of the show in that business is Lancewood. In the six months to June, group revenue was up by 9.6% and the perishables category by 14.6%. The hard cheese products in the Lancewood stable displayed the operating margin expansion that shareholders just love to see, with earnings before interest, taxes, depreciation and amortisation (Ebidta) up by 27.8% against growth in revenue of 14.6%.

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The groceries division had a tougher time of things, showing that the pressure on food producers is significant in most categories. Revenue was only 2.2% higher and Ebitda plummeted by 17.7%, mainly due to supply chain pressures.

Another feature of this operating environment is pressure on working capital. We can see this in Libstar’s numbers, where cash generated from operations (net of working capital) fell by a spectacular 69.9%.

As severe as this drop is, we are seeing it in many companies and industries both locally and abroad. Part of it is a base effect, of course, because of Covid. The economy has reopened and companies have stocked up to make sure they can meet demand.

Andries van Rensburg is stepping down as CEO, after co-founding the company in 2005. CFO Charl de Villiers will be taking over as the big cheese.

Motus tells us a little more

We still don’t know which business Motus is buying. What we do know is that it is an offshore aftermarket parts business with an asset-light business model. This is part of Motus’s strategy to diversify, as car dealerships are cyclical whereas parts are not.

With a market cap of about R23-billion for Motus, an acquisition of between R3.7-billion and R3.9-billion is going to have an impact. The company is paying an Ebitda multiple of between 6.5x and 6.9x, which is reasonable for a deal of this size. To justify that valuation, the target will need to have solid growth prospects.

From Sandton to semigration

“Property” as an umbrella term can be dangerous. There are many property companies on the JSE and they tend to face different market pressures at different times.

For example, Balwin booked 8% more units in its revenue for the six months to August. It notes that semigration has been helpful, driving demand for properties in the Western Cape and even KwaZulu-Natal, despite the province’s recent challenges.

The macroeconomic picture is sending warning signals, though, with higher ­interest rates as an obvious problem for affordability.

Growthpoint is the gorilla in the industry and is facing a massive problem in Sandton in particular, with an oversupply of office space and a world that has clearly moved towards hybrid working arrangements. Vacancies in the office portfolio now sit at 20.7%! They deteriorated in the last period, so the trajectory doesn’t look great either. 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 DM168 newspaper, which is available countrywide for R25.


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