BUY, HOLD, SELL

Weak consumer spending has hit the food counters hard, but there are some bright spots — and perhaps now is a good time to have some cash on hand

RCL FOODS Share price: R10 JSE code: RCL

BUY THE MARKET FOUND IT TOUGH to digest RCL’s recent trading statement — covering the year to end-June — which showed the bulky commodity businesses in poultry and sugar struggling. On the plus side, the grocery business, which carries higher margins, looked in far better shape. If RCL could bulk up this side of the business, the market might find the company a more appetising prospect.

There are more than a few pundits who believe RCL should make a move on Premier Group, which holds attractive grocery brands that might complement and diversify RCL’s food brands basket.

But a recovery in the commodity businesses and possible acquisition activity are not the main reasons for picking RCL as a BUY.

The share is trading almost 35% down over 12 months — pegged by a forecast earnings range of between 32c and 42c a share for the year to end-June.

On a normalised basis, RCL looks awfully cheap. Surely majority shareholder Remgro must be giving thought to pitching a buyout offer to minority shareholders?

A premium-priced offer won’t stress the Remgro balance sheet. Taking RCL private also makes a possible merging-in of the old Unilever spreads brands — which will seriously bolster the grocery segment — easier. ●

AVI Share price: R81.58 JSE code: AVI

HOLD MUCH LIKE RCL FOODS, sentiment for AVI turned bitter after a trading statement showed strain in certain business segments.

AVI — which owns top-quality brands in snacks, tea, coffee, fashion and cosmetics — has been renowned for being able to balance market share with pricing power.

But that’s no easy task these days. AVI said its revenue for the year to end-June would be only 1.2% higher — citing weak consumer spending that was sometimes exacerbated “by competitor discounting which we were unwilling to match”.

AVI said that while gross profit margins were well protected, the lower sales volumes pressured operating profit. Its key creamer and biscuits categories achieved strong year-on-year profit growth in the second half — and this was supported by an improved result from hake fishing company I&J. Of course, operating profit also took a kick from restructuring costs at footwear business Green Cross.

Headline earnings will drop by between 4% and 6% to between 511c and 521c a share. The AVI share might drift lower after the release of final results in early September — but IM reckons shareholders should hang on. AVI is highly geared to an economic recovery, and even a slight uptick in consumer spending will drop down to bottom line. ●

PIONEER FOODS Share price: R104.22 JSE code: PFG

SELL PIONEER FOODS IS SUBJECT TO a premium-priced takeover bid by international food and beverages giant PepsiCo. This is an encouraging deal for Pioneer, which has mostly lived in the shadow of bigger consumer brands conglomerates like Tiger Brands and AVI.

While PepsiCo’s bid is pitched at a generous premium to Pioneer’s market price, the tilt was timed at the low end of the agri-business cycle. Shareholders — including main investor PSG (via Zeder Investments) — might kick themselves when (touch wood) the local economy is notching up sprightly growth again.

Indeed, Pioneer does own an array of strong-selling household brands, and with PepsiCo’s financial muscle and determination to break into African markets, it might look a sturdy food player in the years to come. But most investors might agree that it might be better to have cash in hand at this time. At the time of writing Pioneer’s share price was 500c-600c shy of the PepsiCo buyout offer.

IM would prefer to sell Pioneer shares at current levels, remembering the shortfall on the offer price will be compensated for by interest earned (or saved). There are so many morbidly priced opportunities at this point that a dollop of cash on hand could be useful for bargain-hunting on the JSE. ●