Tiger Brands shares rise 35%
SA’s biggest food producer Tiger Brands has quietly been making waves on the JSE since the unceremonious change of guard nearly three months ago.
Its share price has leapt 35% to R200.51 since October 20 when Tiger announced the departure of Noel Doyle as CEO after less than three years at the helm. He was replaced by industry veteran Tjaart Kruger on a fixed-term basis.
While the company has outpaced its peers over a threemonth period, its share price is still half what it was five years ago when it was trading around R400.
In his short stint as the boss between February 2020 and October 2023, Doyle has had to navigate the fallout of the Covid19 crisis as well as the war in Ukraine, which initially pushed up global grain prices substantially before subsequently tapering off.
Food producers are prone to the vagaries of the soft commodity markets, worsened by a weaker rand against the dollar.
In tough economic times, consumers tend to lean more on cheaper alternatives compared to branded products.
Tiger owns an assortment of brands, including Black Cat peanut butter, Jungle Oats, Koo baked beans and Albany bread. The company has to strike a delicate balance of managing its margins without sacrificing its volumes with price increases.
“While food is considered a ‘staple’ in the economy from a demand perspective, a typical ‘Pig Cycle’ is common in many commodities,” independent analyst Liston Meintjes said. “With low barriers to entry, high prices entice ‘Mom and Pop’ and backyard producers that nearly all come on stream at the same time, flooding ‘the market’ and causing severe price declines.”
Tiger competes with Premier Group, AVI, Rhodes Foods Group, as well as a range of private-label brands.
The frequency and intensity of load-shedding was another headache for Doyle and food producers generally.
“Using your own dieselpowered generators to keep going — at a cost probably about five times that of electricity, never mind the cost of owning and maintaining the generators — would have created both financial and operational pressures,” Meintjes said.
But Tiger’s most recent financial results were a lot better relative to market expectations, resulting in the re-rating in its shares.
As a response to a highly competitive food market, Tiger said last August it would increase the marketing and supply of its products at spaza stores to drive demand at the lower end of the market.
It plans to supply spaza shops directly in areas where there are no wholesalers. But in most cases, it will continue to use large and small wholesalers, while driving demand for goods with advertising and a trader loyalty programme.
Tiger has 170 products that it wants to sell in spaza stores. The consumer goods group plans to have its ranges available in 150,000 spaza stores in five years. At present its products are available in 46,500 spaza stores.