Ready to wing it
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.