One year on, Tiger Brands still to awake from listeriosis ...

Business

One year on, Tiger Brands still to awake from listeriosis nightmare

However, its stock has recovered slightly and at these levels, JP Morgan rates the company a 'buy'

Nick Hedley


It has been exactly a year since Tiger Brands was named as the culprit in the listeriosis outbreak. And while the group has relaunched its value-added meat-products business, its shares are still about 37% lower than they were 12 months ago.
Tiger Brands’ shares plunged in the days after health minister Aaron Motsoaledi announced that polony and products from an Enterprise Foods factory were the source of the deadly outbreak.
The stock, which was trading at R425 when the announcement was made, dipped below the R250 mark by October 2018. It has since recovered slightly, closing at R266.68 on Friday.
At these levels, JP Morgan rates Tiger Brands a “buy”, even though the group is bracing for a class-action lawsuit.
The US bank said in a report in February, when Tiger Brands published a trading update, that it expected the stock to recover to R314 by the end of 2019.
In its update, Tiger Brands said group revenue from continuing operations in the four months to end-January was up 1% versus a year before.
Excluding the value-added meat-products business, group revenue from continuing operations was 8% higher, thanks to selling price inflation of 2% and volume growth of 6%.
Like its competitors, Tiger Brands said it had not been able to fully pass on higher input costs to consumers in the depressed trading environment.
The group said the relaunch of the processed meats unit had been well received by consumers, but difficulties in firing up factories meant it could not meet demand.
JP Morgan said it expected Tiger Brands to report a full-year operating loss of R250m in that business, although “this update presents downside risks to our forecasts”.
“We would, however, view the excess demand as supportive to the long-term viability of this business as it indicates that the Enterprise brand has not been permanently impaired by the listeriosis crisis.”
Mpande Maneli, portfolio manager at Argon Asset Management, said although demand for Enterprise products was gaining traction, the fact that the business was offline for almost a year meant competitors had had an opportunity to gain a foothold.
Some large customers had probably contracted other suppliers, which meant the value-added meat-products business was unlikely to get back to previous sales and profitability levels over the medium term.
“We remain cautiously optimistic on Tiger Brands,” Maneli said.
“Trading operations seem to be turning around. However, as management concedes, the environment continues to be challenging for the consumer. We await clarity on their strategic framework, as the operating environment has had structural changes that need to be addressed.”
Tiger Brands said on Friday the conditions precedent to its sale of eight million shares in the Oceana Group had been fulfilled. The transaction would be complete by March 20.

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