We've got news for you.

Register on Sunday Times at no cost to receive newsletters, read exclusive articles & more.
Register now

Cracking good, Quantum, but investors don’t give a cluck



Cracking good, Quantum, but investors don’t give a cluck

Headline earnings look great at chicken and egg producer, but the market doesn’t really rate it

Marc Hasenfuss

Quantum Foods – which produces commodities like poultry, eggs and animal feeds – has seemingly been too bland to appeal to a market raised on richer fare in the JSE’s food sector.
But the Wellington-based group on Wednesday dished up a hearty trading update that forecast markedly higher headline earnings of 156c/share for the financial year ending September. That’s a big number at bottom line – especially if one remembers that Quantum hit a 12-month low of 250c in October last year.
The trading update’s earnings forecast puts Quantum at a forward earnings multiple of 2.75 times – which suggests the market expects the new financial year to be less extraordinary. The past year saw the group’s egg business crack huge profits after production shortages (thanks to the outbreak of avian influenza) saw prices soar.
The trading update notes that high levels of profitability continued in the egg business – but Quantum added that margins declined with an increase in feed costs and a (subsequent) decline in prices.
The bottom line was also helped by the proceeds of a R22m insurance claim that compensated the group partly for the avian influenza losses that transpired in 2017 and the first half of 2018. There’s no doubt the 2019 financial year will see a meaningful “normalisation” of Quantum profits. But whether this means this lean and mean food commodity business deserves to trade on such a desultory market rating is debatable.
Perhaps sentiment will get back on the boil if Quantum – which has already undertaken a sizeable share buyback – decides to serve up a chunk of its bumper 2018 profits as a special dividend?

This article is reserved for Sunday Times Daily subscribers.
A subscription gives you full digital access to all Sunday Times Daily content.

Sunday Times Daily

Already subscribed? Simply sign in below.

Questions or problems?
Email helpdesk@timeslive.co.za or call 0860 52 52 00.

Previous Article