Still ripe for the picking

JSE food groups such as Libstar, AVI, RCL and Brait’s soon-to-be listed Premier could be where the deals are at this year

What could spark corporate action this year is the planned listing of Premier Group out of the Brait portfolio

● The JSE’s food sector desperately needs some spicing up — and what better way to bring out fuller flavour in these counters than a full course of corporate action?

Food and beverage heavyweight PepsiCo completed its premium-priced buyout of Stellenbosch-based Pioneer Foods about two years ago. Back then, market watchers were mulling other similar juicy deals, perhaps involving Pioneer’s sprawling brands portfolio.

But not much has transpired since.

AVI — which has an enviable range of brands in snacks and beverages — had a brief flirtation with a major international player. Pioneer Foods so far has only let go of its pie business, which was bought by fruit-centred Rhodes Food Group (RFG). Subsequently, things have been pretty bland.

What’s more, food producers are likely to see their margins squeezed in the year ahead.

SmallTalkDaily analyst Anthony Clark, a keen observer of agribusiness trends, predicts that elevated prices for soft commodities will last, driving up costs for major food manufacturers.

Sector heavyweights Tiger Brands and AVI have not exactly shot the lights out over the past year, with the former down by about 12% and the latter up about 4%. AVI, in fact, was up well more than 20% in September on news of a possible deal with Mondelez International (now abandoned), but its shares are now back at precautionary levels.

By contrast, RCL Foods — which looks intent on separating its commodity businesses in poultry and sugar from its nifty grocery segment — is up more than 65% over the past year.

The firmness in the share price not only reflects a determination to reshape the business for sustainable profits, but also the persistent (and frankly logical) speculation that controlling shareholder Remgro will probably need to make an offer to minority shareholders. Remgro also owns Rama owner Siqalo Foods, which would most certainly add bulk and rich cash flows to RCL’s grocery segment.

What could spark corporate action this year is the planned listing of Premier Group out of the Brait portfolio. While second-tier food listings such as RFG and Libstar have not really proved appetising to investors, Premier Group will be big enough and profitable enough to warrant market attention.

Still, it revolves heavily around a bread/wheat/maize axis, and further diversification might be needed before hitting the JSE.

Some market commentators have questioned whether listing Premier Group would be the smart option, suggesting a buyout might be the best play in terms of extracting value.

The operational overlap with RCL Foods,

PepsiCo-controlled

Pioneer Foods and

Tiger probably rules out any advances on

Premier Group, while

AVI is playing in a higher-margin food brands segment.

A possible combination of Premier

Group and Libstar — which is particularly strong in the highermargin segments of dairy as well as in supplying supermarket chains with in-house and specialised products — could be an interesting mix.

It would create a consumer brands conglomerate with enormous reach in both mainstream and niche markets.

That said, there has been talk that Libstar, which has a (disinterested?) private equity firm as a major shareholder, would perhaps provide a more enticing fit with Tiger Brands (remembering that Libstar CEO Andries van Rensburg cut his teeth on the Tiger empire).

It’s been widely reported that dairy sector behemoth Clover, now controlled by Israelbased Central Bottling Co, has seen relationships with its workforce sour in recent months. Allegations are that it hasn’t stuck to Competition Commission stipulations over jobs, after closing some production facilities.

Any production disruptions could see Libstar grabbing a chance to reinforce its strong niche in cheese and yoghurt, which might appeal to any parties that have been watching the group from a distance. There are also rumours that a large international cheesemaker has expressed an interest in Libstar’s star performer, Lancewood.

Clark says Libstar is his pick for merger & acquisition activity this year, adding that a company restructuring and management changes could be on the cards. He believes private equity investor Actis will also need to sell out in the next two years, and that a sale of the company’s household products segment would reposition the business as a more dedicated food play.

Ironically, the first real bit of corporate action this year came from a fishing company, Sea Harvest, despite the fishing rights allocation process still being finalised.

Sea Harvest has added serious scale to its Australian business, Mareterram, by buying fishing, seafood and marine engineering divisions of MG Kailis Group in a deal worth A$70m (about R775m).

Sea Harvest’s Australian operations, which were fully bought out about two years ago, have started to perform better and could benefit further from synergies with MG Kailis.

Profits topped A$6.3m for the year ended June 2021 and will mean — presuming similar profits are earned in this financial year — that the Australian operations could account for a fifth of Sea Harvest’s total revenue.

The enlarged business will also become one of Australia’s biggest seafood players, giving Sea Harvest a strong platform to bolt on more niche businesses and, in the longer term, even look to relist an enlarged group on the Australian Securities Exchange.

Of course, AVI’s recent engagement with Mondelez will spark speculation of other possible deals. AVI’s position is complicated by its operational structure, which spans food, tea/coffee, cosmetics and footwear. Who other than a private equity player would want AVI in its entirety? Food industry sources have pointed out that AVI’s snack division might appeal to PepsiCo, but that might not find too much favour with competition authorities.

Perhaps it might be on the fringes that the early action takes place.

It’s well known that agribusiness Zeder Investments is entertaining advances on its portfolio, with expectations that fruit marketing business Capespan is on the block. The FM has previously speculated that recently formed Dole, which is listed on the New York Stock Exchange, might take a look at Capespan. Dole — the world’s largest fruit and vegetable supply business — was formed by a merger of Dole Food and Total Produce, which had previously looked intent on building a commanding stake in Capespan (before being edged out by PSG/Zeder).

Then there are Crookes Brothers and Quantum Foods, two very different businesses — the former in sugar, bananas, macadamias, deciduous fruit and a crocodile ranch; the latter in poultry, animal feeds and eggs — with a common large shareholder in the form of SilverStreet Capital. It seems a stretch to ever think Crookes and Quantum could be lumped together, but SilverStreet certainly has an array of agribusiness/food operations — Namibian vineyards, Tanzanian cropping and Zambian grains as well as poultry and feeds operations in Tanzania, Kenya and Uganda — that could be added to either.