Analyst welcomes Quantum resilience despite fragile prices

Western Cape-based poultry and animal feeds business Quantum Foods says a biggerthan-expected fall in egg prices weighed on its first-half performance, with the group cutting its interim dividend by a quarter.

Egg prices declined sharply, by 7.4%, in the six months to end-March, and the group had been expecting oversupply to weigh on profit margins.

Operating profit for the period fell 24% to R91m, with the group trimming its interim dividend 25% to 6c per share. The company said while it continues to trade as a provider of essential products, there is still uncertainty about the full impact of Covid19 on its operations, financial performance and cash flows.

“That the company kept an interim dividend of 6c shows the resilience and faith management have in the balance sheet and cash position,” said Small Talk Daily’s Anthony Clark.

Group revenue increased by 16% to R2.4bn. Headline earnings per share fell by 24% to 34.5c. “This is commendable given that the egg market has been ‘cracked’ for a year and input costs have been higher from soft commodities,” he said.

The animal feeds business increased volumes by 18% while the volumes in the eggs division rose by 16.3%. Its farming business increased production volumes by 6.8% for day-old pullets and 11.6% for point-of-lay hens.

The company, with a market capitalisation of R630m, said it expects an improvement in the supply and demand balance of eggs in the second half of the financial year. Egg supply should decrease slightly due to lower placements of day-old chicks, the group said.

“Egg prices will be managed judiciously to balance the requirements of ensuring a sustainable business and the needs of the consumer,” it said.

It is also expecting cost pressures to increase in its second half, but says a portion of this should be recoverable in its farming and feed businesses.

7.4% the drop in egg prices in the six months to end-March

R2.4bn the group’s revenue despite a weak egg market and higher input costs for Quantum Foods

THERE IS STILL UNCERTAINTY ABOUT THE FULL IMPACT OF COVID-19 ON ITS OPERATIONS AND CASH FLOW

The company said: “Raw material prices are expected to increase — only due to the effect of the devaluation of the rand. This will result in a cost push throughout the business. A portion of this impact should be recoverable in the farming and feeds businesses.”

Clark said Quantum “has a solid platform and many resilient qualities. Its cash balance, equal to 25% of its current market value, serves as a good cushion in uncertain times”.

On Thursday, Quantum’s share was up 6.7% to R3.34. It has fallen 18.5% in 2020.