B RA I T A nibble here and there
Investment company Brait might need to stir the deal-making pot to bring out more flavour from 65,4%held Premier Foods. At end-September Brait valued its stake in the staple foods specialist rather conservatively at R1,25bn, using a 6,5 p:e. Premier Foods represents 10% of Brait’s total R13bn in assets, which is hugely overshadowed by its R8bn holding in affordable fashion retail conglomerate Pepkor.
There’s no doubt Premier Foods — which competes in the bread (Blue Ribbon), flour (Snowflake) and maize meal (Iwisa No 1) segments — could be much more meaningful to Brait than it is now.
The company’s year-to-June numbers were solid with turnover of R5,7bn turned into earnings before interest, tax, depreciation and amortisation of R289m. The operating margin of 5% is wholesome considering the staple food offering.
The challenge for Premier Foods is to broaden its brands basket to enhance the margin. Brait’s interim presentation makes it clear that Premier Foods will target acquisitions in a wide range of food categories in which it has no offering now.
The question is whether Premier Foods (and Brait) might have missed an opportunity to acquire Foodcorp, now part of a proposed deal with Rainbow Chicken. Foodcorp would have added a range of food products to Premier Foods’ brands basket, including mayonnaise, peanut butter, pies, rusks and pet food.
Brait CEO John Gnodde concedes that components of Foodcorp would have been a good fit with Premier. “However, when looking at Foodcorp in its entirety, there probably would have been concerns over antitrust issues from combining the milling and baking businesses.”
If this means Premier Foods has to nibble here and there to accumulate additional food brands, it is worth noting that JSE-listed rival Pioneer Foods — also rooted in staples like bread and cereals — has enjoyed at best mixed fortunes in broadening its brand basket over the past decade. Holding brands with third or fourth market share rankings is not the way to fatten up margins.
Gnodde says broadening the product basket is an important part of the strategy as it enables Premier Foods to utilise the infrastructure and extensive distribution network it has as a national miller and baker. Premier Foods has one of the largest distribution networks in SA, making more than 28 000 deliveries a day. “The benefit we have in pursuing this strategy is that we don’t have competing businesses besides milling and baking. We believe there are a number of acquisition opportunities of fastmoving consumer goods brands and businesses in SA and elsewhere in Africa that can be integrated into Premier Foods. We are working on some of these.”
Gnodde stresses the key to making a success of these potential acquisitions will be the discipline applied to strategic fit and pricing.
Though deal-making may be the quickest way to spice up operations at Premier, internal initiatives could also have an impact. The company has hinted that substantial investment will be made in internal projects.
Gnodde says this investment will involve the milling and baking businesses. “The company is busy with expansion projects to add capacity at various facilities that will be completed over the next two years. The returns from these projects are attractive and low risk, as they come from efficiency gains and meeting known demand.”
He adds that further growth impetus for existing brands could come from revamped in-store Iwisa branding and innovative product extensions to the best-selling Snowflake brand.
There is also an ambitious target of growing the market share of a “repositioned” Blue Ribbon by 10% over three years.
What should not be discounted is a concerted push into African markets by Premier Foods after the acquisition of bakeries in Lesotho and Swaziland earlier this year. Gnodde estimates that Lesotho and Swaziland should account for 10% of group profits in the current financial year.
But there could be a lot more to come. Gnodde says Premier Foods has been adding to its products in the past 12 months. “This remains a focus area and we have a number of opportunities for joint ventures.”