Astral may bounce back in 2024

Astral Foods could bounce back this year after SA’s biggest poultry producer suffered its first loss since listing on the JSE in more than two decades.

While the operating backdrop remains challenging and uncertain with national elections on the horizon, Astral and other poultry producers are more likely to benefit from the low base set in 2023 when record power outages and decaying municipal infrastructure added to high production costs.

Avian flu was another negative feature in the industry over the past year, though the situation has since improved.

Astral competes with Quantum Foods and RCL Foods’ Rainbow Chicken, along with other privately owned players.

Rolling blackouts, water disruptions and bird flu cost Astral about R2bn in the year ended September.

“There are too many extraneous factors beyond its control that gives directionality to the company’s earnings despite management’s renowned farming and operational expertise,” Anthony Clark, an independent analyst at Smalltalkdaily Research, said in a note.

“If it’s not the volatility of the key soft commodities, it’s avian influenza and, in the last few years in SA, the crumbling stateowned infrastructure of electricity and water which are paramount to a time-sensitive large integrated poultry operation.”

Astral will also benefit from the lagged effect of lower international grain prices. Its feed costs, mainly consisting of maize and soya, make up 70% of the total cost to produce a live broiler chicken.

The El Niño phenomenon, characterised by hot and dry weather, has not yet translated into high prices on the international level.

Barring higher stages of loadshedding, Astral is likely to benefit from lower production costs relative to 2023 financial year.

Its share price ended little changed at R145.14 on Friday, having lost 8.7% over the past year.

“Load-shedding has returned but is certainly not back at the existential levels [of the second half of 2023]. That again should pare some operating costs,” Clark said.

“Then factor in lower soft commodity input costs and even the whiff of a price increase ahead of the Easter trading period, and I can see Astral swinging back into a reasonable profit in poultry after the R1.38bn loss.”

Quantum Foods and Rainbow Chicken could also similarly recover in 2024.