Trad­ing at af­ford­able lev­els Lo­cal poul­try pro­duc­ers have to con­tend with higher maize prices as well as im­ports from the US. But since con­sumers’ ap­petite for this meat is in­creas­ing, it’s not all bad news.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za has been rated as one of the top 5 tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the Re­search Team in the Trea­sury Div

chicken meat con­sump­tion in South Africa is fore­cast to in­crease by 38% over the next decade, equat­ing to about 700 000 tons of ad­di­tional poul­try con­sump­tion by 2024, ac­cord­ing to re­search by the Bureau for Food and Agri­cul­tural Pol­icy (BFAP).

Poul­try meat con­sump­tion – mainly chicken meat – has in­creased from 21.5kg per per­son a year in 2000 to 38.5kg per per­son a year in 2014, ac­cord­ing to BFAP data. By 2024, it would sur­pass 44kg per capita, it says. The in­crease in con­sump­tion makes poul­try meat the most pop­u­lar pro­tein source for South Africans, and has been driven largely by eco­nomic growth and in­creases in South African house­holds’ dis­pos­able in­come.

Astral Foods is a lead­ing in­te­grated poul­try pro­ducer in SA whose ac­tiv­i­ties in­clude the man­u­fac­tur­ing of an­i­mal feeds, pro­duc­tion and sale of day-old chicks as well as broiler ge­net­ics. The group pro­cesses over 200m broil­ers p.a. at its three abat­toirs. Its brands in­clude County Fair, Moun­tain Val­ley and Goldi Chicken.

De­spite the promis­ing growth out­look from a de­mand per­spec­tive, lo­cal poul­try pro­duc­ers have been un­der pres­sure. Astral said in a re­cent trad­ing state­ment that it ex­pects its head­line earn­ings per share for the six months to end March to be be­tween 20% and 30% lower than the cor­re­spond­ing pe­riod last year.

A num­ber of fac­tors have neg­a­tively in­flu­enced its re­sults, which will be re­leased on 16 May, af­ter fin­week went to print. Th­ese in­clude in­creased feed costs due to the im­pact of the drought on lo­cal maize pro­duc­tion; the high cost of maize im­ports due to the weak­en­ing of the rand against the dol­lar; and the fact that house­holds’ dis­cre­tionary in­come is un­der pres­sure, thereby neg­a­tively im­pact­ing de­mand for poul­try prod­ucts, Astral said.

Lo­cal pro­duc­ers also con­tinue to com­plain about what they de­scribe as high im­port lev­els of poul­try prod­ucts. In the pe­riod un­der re­view, im­ports con­trib­uted to high poul­try stock lev­els, “re­sult­ing in ex­ten­sive pro­mo­tional ac­tiv­ity on poul­try prod­ucts in the mar­ket”, Astral said. SA has, for ex­am­ple, re­cently agreed to a quota of 65 000 tons a year of US chicken im­ports – a num­ber of US chicken prod­ucts have been sub­ject to substantial an­tidump­ing du­ties in SA for many years – as part of ne­go­ti­a­tions for the coun­try to re­main a ben­e­fi­ciary of the USA’s Africa Growth and Op­por­tu­nity Act (Agoa).

Though the macro en­vi­ron­ment for the poul­try in­dus­try cur­rently seems bleak, Astral pro­duces a com­mod­ity where healthy de­mand growth is ex­pected in the com­ing years. In ad­di­tion, the stock is trad­ing at a cheap price-toearn­ings ra­tio (P/E) of 6.16 times and a very gen­er­ous div­i­dend yield of 9.3%.

What next?

Pos­si­ble sce­nario: The pre­vi­ous head-and-shoul­ders break­out had a down­side tar­get at 9 570c/ share. Now that Astral has met that ob­jec­tive, it’s re­gain­ing up­side and has bro­ken out of its medi­umterm bear trend, as well as an in­verted head-and-shoul­ders pat­tern – con­firmed above 11 865c/share. The up­side tar­get is sit­u­ated at 14 910c/share. Above 16 070c/share Astral would com­plete a 100% re­trace­ment to 20 680c/share. We rec­om­mend a long on Astral at any level above 10 600c/share with in­cre­ments at ev­ery re­sis­tance level break­out. Al­ter­na­tive sce­nario: The pre­vi­ous bear trend would be re­sumed be­low 10 600c/share. Sup­port at 8 820c/share could then be retested.

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