Friday, December 6, 2024

GHOST BITES (Astral Foods | Impala Platinum | Lewis | Santova | Tiger Brands)

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No cluck-ups at Astral Foods (JSE: ARL)

Things are just so much better in the poultry sector

The poultry sector is a wild thing. The margins are thin and the risks are extensive. Like a toxic relationship, the bad times are terrible and the good times are great.

For the year ended September, the love has been flowing at Astral Foods. HEPS has swung spectacularly from a loss of R13.24 per share to positive earnings of between R18.53 and R19.85 per share.

Detailed results are due on 18 November. You can expect to read about the benefits of no loadshedding, better prices to consumers and far less in the way of Avian flu disasters.


A drop in first quarter production at Impala Platinum (JSE: IMP)

The group has maintained full-year guidance though

Although things remain difficult in the PGM market, Impala Platinum is telling a more positive story based on discussions with the core customer base. One can only hope for improvement in PGM prices, especially after positive momentum in the share price this year – Impala Platinum is up 39% year-to-date.

The production numbers for the first quarter don’t look great though, with 6E group production down 5.5% year-on-year. Gross 6E refined and saleable ounces fell by 8.8%. Finally 6E sales volumes were down 4.5%.

At this early stage in the year, full-year guidance for volumes, cost and capital expenditure has been maintained.


A monster result from Lewis – and the market celebrated (JSE: LEW)

Sometimes, it’s the least sexy companies that make the money

Lewis sells furniture (and some other stuff) on credit. It’s really that simple. This isn’t exactly on your “what I wanna be when I grow up” hall of fame list, but it’s a business that can make serious money when things improve in an economy.

For the six months to September, Lewis has enjoyed much better sales growth at stable gross margins. To add to the happiness, operating costs were within the target range. The chef’s kiss? Collections are at near record levels, so the credit book quality looks good.

The net result of all this good news is that HEPS grew by between 45% and 55% for the six months to September. In morning trade, Lewis was up 11% as the market celebrated these numbers. It eventually closed 7.3% higher for the day.


Santova is coming off the boil (JSE: SNV)

Aah, the joy of cycles

Throughout the pandemic, Santova registered great growth in revenue. In fact, revenue more than doubled from 2018 to 2023, which is excellent. At some point, they needed to have a wobbly – it’s just how cyclical businesses work. The six months to August have proven to be one such wobbly, with revenue and net interest income down 5.8% and HEPS down by a nasty 19.9%.

There are reasons to believe that the second half of the year could be better, with decreasing interest rates and Chinese stimulus that may lead to increased global trade. It’s very hard to forecast though, which is why Santova just focuses on making the most of each period and riding the cycle.

The share price is down 6.5% year-to-date, a modest drop when you consider the underlying earnings. Santova took advantage of this share price pressure to repurchase shares representing 1.3% of shares in issue.

One of the metrics to always keep an eye on here is cash generated from operations, as Santova’s business is working capital intensive. This metric fell sharply from R25.3 million to just R6.2 million for this period.

Those who bought five years ago are still smiling broadly, with the share price up 325% over that period!


Modest profit growth at Tiger Brands (JSE: TBS)

The focus has been on margins rather than top-line growth

Tiger Brands has released a voluntary trading update for the year ended September 2024. The backdrop has been tough, especially with consumers looking for ways to bring their grocery spend down and retailers responding with strong private label offerings. This is one of the main reasons why I struggle to form a bullish long-term view on Tiger Brands.

Still, the improved South African sentiment has led to a 19% share price gain year-to-date, so well done to those who locked this in. You will struggle to justify that trajectory based on the underlying results, with marginally higher revenue and a modest recovery in gross margins. Tiger Brands has prioritised pricing and margin over volumes, supported by cost saving initiatives.

HEPS only increased by between 3% and 5%, so this is a rather tame Tiger. This is HEPS from total operations rather than continuing operations, so we have to be patient to see that difference. We also have to be patient around some of the other reconciling items, like income from associates and the receipt of insurance proceeds related to the value-added meats business.

For now, we know that some of the earnings pressure came from Home and Personal Care in the second half, attributable to increased competitor activity – a nice way of saying that FMCG is a tough way to make money. The Deciduous Fruit business was also a drag in the second half, impacted by global fruit puree pricing.

The Listeriosis class action remains an overhang here. They are in pre-trial preparation mode at the moment, which will lead to a trial date to determine liability. In the meantime, Tiger Brands is aiming to agree on relief to qualifying individuals with urgent medical needs, as this is likely to still take a long time to be resolved.


Nibbles:

  • Director dealings:
    • The ex-CEO of Italtile (JSE: ITE) sold shares worth R11.4 million.
    • The CEO of AVI (JSE: AVI) received share awards and sold the whole lot worth R3.9 million.
    • There’s yet more selling of shares by the same CMH (JSE: CMH) director, this time worth R606k.
    • A director of Momentum (JSE: MTM) bought shares worth R284.5k.
  • In case you wondered whether shareholders of Metair (JSE: MTA) are excited to see the back of the Turkish business, the deal has achieved unanimous approval from shareholders who voted at the meeting. It’s very rare to see all shareholders saying yes to something, especially with 87.28% of shares represented at the meeting!
  • Transaction Capital (JSE: TCP) is in the process of selling Road Cover, with the deal structure including what is known as a resolutive condition – an unusual structure in which the deal goes ahead and then various conditions need to be met for things to stay that way. The more common structure is suspensive conditions, which need to be met before a deal is finalised. The resolutive conditions were set up with a long stop date of 31 October. The parties have agreed to extend this to 30 November, so there’s clearly some deal risk here.
  • There are a couple of important board developments at Telemasters (JSE: TLM), with Professor Brandon Topham’s interim CFO position becoming permanent CFO and Advocate Miller Moela appointed as lead independent director of the company.
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