The Finance Ghost – the lowdown on the chicken crisis, Bytes and Texton
Avian flu is becoming a very serious issue, not least when you consider the role this staple protein plays in South Africa.
After Astral Foods took the first blow in the market from the avian influenza outbreak, announcements came through from Quantum Foods and RCL Foods.
The outbreak has dealt a severe blow to Quantum Foods, starting with the devastation at its Lemoenkloof layer farm in April 2023. Unfortunately, this poultry nightmare continues, as the virus has now spread to its farms in Gauteng and North West.
The financial impact is enough to seriously ruffle feathers, with an estimated R106-million hit.
That’s a significant number in the context of Quantum Foods’ market cap of R880-million. The company has released a trading statement noting that profits are a thing of the past, with no indication of how large the loss will be.
There is a silver lining: farms in the Western and Eastern Cape are unscathed. Nevertheless, the poultry industry as a whole is facing turbulent times. Astral Foods’ recent update highlighted industry-wide challenges, including blackouts and weakened consumer spending.
RCL Foods has announced that 11 of its 19 inland sites have been affected by avian flu. About 410,000 birds have been culled, with an estimated financial impact of R115-million.
It’s a complete disaster in the industry. In a world of chicken or beef, you may soon have no choice.
Tasty Bytes in the UK
The local market is full of companies getting smashed by local operating conditions. Thankfully, there are choices that give exposure to markets that have electricity and a reliable supply of water. Sigh.
One such group is Bytes, a technology group operating in the UK. The share price is up by a magnificent 42% this year, with a great combination of being a rand hedge and also generating strong growth.
The latest update from the company was light on details but still had those magic words: double-digit growth.
Both gross profit and adjusted operating profit are heading solidly in the right direction, with gains in market share in both the private and public sectors.
Texton thanks the weak rand
Speaking of rand hedges, we’ve seen a vast number of property updates in the past few weeks. They are a mixed bag of note, with broad exposure in South Africa tending to be problematic (like Growthpoint) and targeted exposure still giving decent returns (like Attacq).
Texton is interesting because the usefulness of the weak rand is clearly visible in the group-level returns. With a very concerning 89.3% of the South African portfolio in office properties, even the Wallabies coach is having an easier time of things right now than the local team.
Still, the SME-focused strategy has shown some promise, reducing the vacancy rate from 22.3% to 18.5% in the year ending June 2023. Rental rates, though, are still taking a hit, especially in the office sector, where they’ve dipped 14.3%.
The rand hedge benefit starts to come in when you look at the UK portfolio, where the primarily industrial exposure with triple net leases offers relatively stable income, with rand depreciation counterbalancing pressure on property values in that market.
With Texton trading at such a large discount to net asset value per share, I haven’t been a fan of its strategy to invest in US property funds.
Turning the portfolio into a fund-of-funds is just an attempt to hang on to capital rather than doing large share buybacks and unlocking value for investors. The rand weakness will only encourage this strategy, helping Texton to grow its dividend and net asset value in rands. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.