Tiger Brands: Food for thought

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

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