Tiger Brands: Food for thought

Share: JSE share code: Share price: 12m High: R478.06 TIGER BRANDS TBS R278 12m Low: R239.82

Financial Mail - Investors Monthly - - Front Page - Petri Redel­inghuys

Tiger Brands has come un­der se­vere pres­sure over the past year. On Jan­uary 25 it traded at an all-time high of R478.06. By mid-Fe­bru­ary, news broke that Tiger Brands was ul­ti­mately re­spon­si­ble for the break­out of lis­te­rio­sis in SA that ended up claim­ing more than 200 lives.

This is a tragedy that can’t be played down.

Sev­eral En­ter­prise pro­cessed meat fac­to­ries were shut, and Tiger Brands lost rev­enue as well as the trust of con­sumers. The com­pany is also fac­ing a class ac­tion law­suit that is likely to be a drag on prof­its.

Tiger Brands is feel­ing the ef­fects of this, judg­ing by the trad­ing state­ment it re­leased in Novem­ber warn­ing share­hold­ers that earn­ings will be down more than 20% com­pared to the same pe­riod the year be­fore.

Apart from the ef­fects on earn­ings and rep­u­ta­tion, the share price is down some 42% from those highs it reached in Jan­uary.

There is some good news, though.

One En­ter­prise fac­tory has been ster­ilised, in­spected by the depart­ment of health and re­opened.

The brand dam­age that was done might take some time to re­pair, but En­ter­prise is not the only brand in the Tiger Brands sta­ble.

Mak­ing a full list of the brands that Tiger Brands owns is a ter­ri­ble waste of words as there are just so many, but a good un­der­stand­ing of what the com­pany man­u­fac­tures is still re­quired.

Tiger Brands man­u­fac­tures food and bev­er­age prod­ucts, as well as some noned­i­bles that mainly fall in the con­sumer goods sec­tor.

It pro­duces, among oth­ers, Pu­rity baby food, Oros, var­i­ous maize meal prod­ucts, rice, pasta, peanut but­ter, may­on­naise, ba­con, sweets and even Doom.

There are a lot prod­ucts — the prod­uct cat­a­logue runs to 189 pages. It has 41 sub­sidiaries op­er­at­ing in seven coun­tries to man­u­fac­ture and pack­age this vast va­ri­ety of con­sumer goods, which it sells in 62 coun­tries, mainly in Africa. This makes Tiger Brands SA’s largest food com­pany.

So back to the good news — the dis­as­ter that led to the share price slid­ing and rev­enue be­ing neg­a­tively im­pacted has been dealt with for the most part and the now con­sid­er­ably lower share price of­fers some value.

Go­ing out on a limb here, I want to say that the worst should now be be­hind Tiger Brands.

Cur­rently the stock is trad­ing on a p:e ra­tio of 15.83, which is de­cent con­sid­er­ing that the five-year av­er­age div­i­dend growth rate is 12.05% and the cur­rent div­i­dend yield is 4.15%.

Not only that, but Tiger Brands has a to­tal debt-toe­quity ra­tio of only 7.81%. So, it ticks some of the value in­vest­ment boxes for long-term in­vestors.

From a tech­ni­cal per­spec­tive, the stock has come down and bounced off a long-term sup­port level that has held on sev­eral oc­ca­sions dur­ing 2012 and 2014.

This may be rep­re­sent­ing a high prob­a­bil­ity en­try point for a buy, as you can eas­ily man­age your risk by cut­ting losses if the sup­port level fails.

It also of­fers some safety in the sense that it is a de­fen­sive stock. It op­er­ates in a non­cycli­cal eco­nomic sec­tor. In other words, if all this bear­ish­ness is in fact well founded and global mar­kets en­ter a bear phase over the next six to 18 months, Tiger Brands of­fers a good place to keep money safe dur­ing the storm.

The prod­ucts it sells are mostly gro­ceries and essentials that peo­ple need to buy re­gard­less of eco­nomic con­di­tions. Peo­ple aren’t go­ing to stop eat­ing be­cause in­ter­est rates went up. Sure, they might eat less, but over­all the prod­ucts that Tiger Brands pro­duce are the ba­sics that peo­ple sim­ply can’t af­ford to stop buy­ing.

So, what is the game plan here?

Well, let’s as­sume that the share price comes down a bit more af­ter a set of poor re­sults and what is turn­ing into sus­tained sell­ing pres­sure on the mar­ket in gen­eral. In­vestors who have a long-term out­look and a pen­chant to buy value rather than mo­men­tum, and who are a lit­tle bear­ish about the con­tin­ued prospects of a 10-year-old bull mar­ket, might con­sider buy­ing some Tiger Brands shares.

“If all this bear­ish­ness is in fact well founded and global mar­kets en­ter a bear phase over the next six to 18 months, Tiger Brands of­fers a good place to keep money safe dur­ing the storm

Other com­pa­nies an­a­lysed in this is­sue: As­tral Foods, Ver­i­mark, ENX Group, Novus Hold­ings, Spear Reit See Pages 31-34 for these share analy­ses

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