COUNTRY BIRD HOLDINGS – a promising poultry house on the radar screens of many small cap specialists – greeted 2011 with a tainted image it undoubtedly will struggle to repair… at least in the near future. Its share price took a hard dive on revelations subsidiary Supreme Poultry “reworks” frozen chicken for human consumption before some placatory remarks saw the share drifting back to its current 325c levels.
The ghastly exposé by an allegedly disgruntled former employee caused much dissention in the poultry industry. Competitors and retailers quickly distanced themselves from such a practice and reassured consumers of the quality of their chicken.
Developments couldn’t have come at a worse time. South Africa’s poultry producers are battling with imports, largely from South America, aided by a strong rand. It remains to be seen how the stain will spill over to other poultry producers. It’s also still unclear if Country Bird itself has fully absorbed the reputational damage.
As a company, Country Bird has been a feisty player in the poultry industry. Its failed bid in 2009 to acquire Eastern Cape-based rival Sovereign Foods suggested it has some ambitious strategic plans under its wing. Of late, Country Bird has been beefing up its operations to attain greater efficiencies.
So where does the scandal put it as an investment destination, at least over the short term? Gut feel: there’s plenty of fish elsewhere in the investment sea. Reputation is everything when it comes to companies. Of course, all companies have skeletons in their cupboards. But the trick is always to ensure your skeletons don’t get dangled in public. It will take a great deal of effort and money for Country Bird to undo the reputational damage caused by the story.
As such, we’d rather be plucking for one of the more established poultry counters – Rainbow or Astral.