Ready to wing it

Finweek English Edition - - COMPANIES & MARKETS - MARC HASENFUSS

THE RE­CENT move­ments in the share price of Coun­try Bird Hold­ings are in­struc­tive and Finweek won­ders whether poul­try coun­ter­part Sov­er­eign Food In­vest­ments will soon take wing as well. While there’s no geo­graphic over­lap in CBH and Sov­er­eign’s op­er­a­tions, there are some sim­i­lar­i­ties in the com­pa­nies – both be­ing smaller poul­try play­ers (com­pared with As­tral and Rain­bow) and both grap­pling with debt is­sues.

Sov­er­eign has re­cently twice re­verted to its share­hold­ers for fresh cap­i­tal to cull its debt bur­den. The fact Sov­er­eign re­ceived suf­fi­cient sup­port from its share­holder body – in­clud­ing a cou­ple of big hit­ting in­sti­tu­tions – does say quite a lot about the com­pany’s ex­ten­sive (read: big spend­ing) ef­forts to im­prove pro­duc­tion vol­umes and drive ef­fi­cien­cies. There’s also a bit of in­trigu­ing mar­ket lore about Sov­er­eign, in that it has dur­ing its ten­ure on the JSE (the com­pany listed in the mid-Nineties) shown the abil­ity to bounce back con­vinc­ingly from set­backs.

To put things in per­spec­tive, we should per­haps re­mem­ber Sov­er­eign gen­er­ated earn­ings of more than 200c/share as re­cently as 2007. Col­lec­tive div­i­dends for fi­nan­cial years 2006 and 2007 were a whole­some 130c/share. Re­sults from the year to end-Fe­bru­ary cer­tainly sug­gest Sov­er­eign – which is still not en­joy­ing op­ti­mum trad­ing con­di­tions – is no longer in a flap. While gear­ing is still fairly tight at 67% (al­though well down on last year’s 97%), there’s a fair bit of com­fort to be taken from the R163m gen­er­ated in op­er­a­tional cash flow.

This op­er­a­tional cash flow equates to more than 340c/share – a fig­ure that should per­haps be kept in mind when look­ing at bot­tom line earn­ings of 58c/share (which takes into ac­count the in­ter­est bill and de­pre­ci­a­tion). And there can’t be too much doubt Sov­er­eign can im­prove its trad­ing mar­gin of 10,4%.

Even though its share price hasn’t plucked up like CBH’s, we re­tain Sov­er­eign’s rat­ing as a BUY.

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