Libstar asks for trimming of stake
• Private equity fund’s holding an overhang on food producer’s share price — financial director
Libstar, the food producer and supplier that has struggled to make a mark since its listing in May, wants its biggest shareholder to reduce its stake in a move to boost liquidity in the firm’s shares.
Libstar, the food producer and supplier that has struggled to make a mark since its listing in May, wants its biggest shareholder to reduce its stake in a move to boost liquidity in the firm’s shares.
Private equity fund APEF’s 36.75% shareholding in the company could be one of the reasons for the lacklustre performance of the company’s share price since it listed on the JSE on May 9.
Libstar wants the stake to be no more than 26%.
Since debuting on the JSE at R12.50, Libstar’s share has lost almost 21%, outpacing the JSE’s food producer index, which is down 11.52% in the period.
APEF’s significant shareholding was an overhang on the share price, Libstar commercial and financial director Robin Smith said on Tuesday. “Libstar management would like to assist APEF place some of the shares with strategic or institutional investors. It is something that we think about all the time.”
Libstar is the owner of Cape Herb & Spice; Denny, which is widely known for mushrooms; dairy group Lancewood; and other food brands.
The share’s poor run was just one of several factors that stood out in Libstar’s first few months as a listed entity.
Smith said the company’s performance in the six months ended June 30 were “not as vibrant as we would have liked them to be”.
In the six months, the company encountered “operating headwinds” such as a six-week strike at the Dickon Hall Foods division.
“Fortunately, [the strike] has been resolved and there will be improved production in the second half of the year,” Smith said.
Libstar’s consolidation of three Denny Foods factories into Montagu Foods also took longer, affecting production in the six months, he said.
“We lost sales for about four weeks,” he said.
Lower production and prices of fresh mushrooms suppressed revenue and gross profit.
Smith attributed the lower production to the drought in the Western Cape.
On the other hand, mushroom oversupply in the SA market also triggered discounts “in order to move volumes”.
He, however, downplayed the influence of the mushroom business on the company’s overall financial performance, saying it accounted for R214m of Libstar’s R4.5bn revenue. “It is small, from a revenue point of view,” he said.
The company expected improved performance from the recent acquisition of Sonnendal Dairies, which is historically a low-margin business, he said. “We bought Sonnendal in late 2017 in order to gain capacity and technology in the yoghurt category,” he said.
Libstar has launched a range of premium dairy products, a move that Smith said would boost margins in the second half of the financial year.
In the six months, Libstar’s revenue increased by 14.2% to R4.5bn, while operating profit fell 13.8% to R223m.
Headline earnings per share fell from 25c to 13c.
Gross profit margin was down from the previous 22.4% to 20.9%.
Libstar’s shares were up 2.06% at R9.90 on Tuesday.
SINCE DEBUTING ON THE JSE AT R12.50, LIBSTAR’S SHARE PRICE HAS LOST ALMOST 21%
Perhaps Libstar should not have gone public, as some commentators have said. Certainly, the consumer packaged-foods group that owns brands such as Lancewood cheese and Denny mushrooms and makes ready-meals for Woolworths, was mispriced when its sponsors took it to market at R12.50 a share, in the process raising R3bn, half of that to pay down debt.
But at least investors now have a maiden set of numbers with which to work – which may have been one of the reasons the company had a positive day on the JSE on Tuesday, while most other SA Inc stocks fell in a heap.
While operating profit fell almost 14% to R223m, and that partly due to foreign exchange losses, Libstar has been able to drive through positive growth in volumes, as well as an increase in organic sales.
It will need to make good on its margin promises though. Its gross profit margin fell to just under 21%, partly due to lower mushroom prices.
But the company says price increases it has passed on to customers, as well as cost cuts, have restored margins to previous levels and these should be maintained to the end of the year. Any disappointment here will take a further toll on the share price, now down more than 20% since its May debut.
Libstar’s earnings are weighted towards the second half of the year and the crucial Christmas trading period, which, given SA’s recession, may be bleak.
Investors will also want further clarity on Libstar’s ability to pay dividends, which, unsurprisingly given its debt, were not forthcoming in the half-year.
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The group has yet to approach institutional fund managers, so there is speculation it will try and grow its SA investor base gradually.
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But it is still hard to see how this company will attract SA institutions, considering that many of them have lost billions already due to the dramatic loss of value in the Resilient stable of companies, which have been at the centre of allegations around the trading of their shares. Understandably, fund managers would be cautious about any new potential listings.
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