Tiger yet to show its stripes
AFTER some harsh lessons on the acquisition trail in Nigeria and Kenya, consumer goods giant Tiger Brands is seeking to consolidate its market position at home — and analysts say competitors could have reason to be wary.
The company will announce its interim results on Tuesday.
Since the departure of CEO Peter Matlare and the resignation of chief financial officer Funke Ighodaro in recent months, as well as the completion of the write-down and sale of its Nigerian assets, stand-in CEO Noel Doyle — who is also chief operating officer — has taken a scalpel to the company’s cost structure.
The share price has responded positively to the moves by Doyle, who is well respected and has extensive experience in the company’s operations.
But it remains to be seen what new CEO Lawrence MacDougall, who has barely had time to unpack, will do to shake up a food producer carrying too much fat.
A key factor in shareholder confidence will be Doyle’s future role. According to Damon Buss, of Electus Fund Managers, Doyle said recently that if he had been made CEO on a permanent basis he would not have named a new chief operating officer in his place.
“I think the best would be for him to become chief financial officer, a role he has filled before,” Buss said. “There could be a benefit to have an external CEO with fresh ideas alongside this immensely talented and knowledgeable individual.”
Other analysts said they would be worried if Doyle were to leave the business in the next two years as the new management team — replacing what has been called a “stale” team — beds itself down.
“It might be a frustrating interim results presentation with everyone wanting to hear MacDougall’s plans for going forward and changing things,” Buss said.
What shareholders will want to see is further commitment to the company’s home base of South Africa, increased efficiency, reduced costs and efforts to strengthen its leading brands.
Buss used Black Cat peanut butter as an example of how Tiger Brands NINE LIVES: Black Cat is an example of a Tiger Brands product that competitors have toppled from supremacy allowed rivals to erode a clear market leader position.
For now, the company’s Albany bread brand still has an advantage, but competitors such as Pioneer Foods and Premier Foods are making headway.
According to 36ONE Asset Management’s Daniel Isaacs, the success of both Pioneer and Premier has partly been due to their commitment to adjusting their cost bases — something Tiger has struggled to do. Isaacs said both had invested well in good assets to increase product quality and profitability, but Pioneer had also taken an axe to its cost base, which boosted earnings considerably. “If Tiger focused on costs and used its considerable cash flow for more measured, high-return investments, it should see a considerable uptick just from that.”
Tiger has been weighed down by poor capital allocation and missteps elsewhere on the continent — in the first half of last year it faced a fraud scandal involving its Kenyan Haco acquisition.
That should largely be worked out of its cost base this year, so analysts are expecting sensible capital deployment and a focus on making use of existing brands to bring about a rerating.
Tiger Brands is currently trading at a discount compared with forward earnings multiples of its competitors.
Another challenge Doyle and MacDougall are facing is the effect of the drought on raw material prices. According to Buss, AVI has been the clear market leader in balancing price increases without shedding volumes in a weak consumer environment, while Tiger has historically struggled to find such balance.
“There hasn’t been a lot of margin squeeze yet, from what we saw in Tiger’s recent trading update, but it’s a volatile market environment. In Tiger’s favour, it is a fairly defensive business and they have a reasonable degree of business certainty while some consumer peers have missed earnings-per-share expectations,” said Investec Asset Management’s John Thompson.
Tiger should be able to achieve some easy wins with a new management team and scope to improve profitability now that its massive write-off in Nigeria is history. But it will be difficult for its executives to provide accurate guidance for the rest of the year against such an uncertain economic backdrop.
Competitors such as Pioneer Foods and Premier Foods are making headway