Market not worried by poor profit

RCL Foods met expectations yesterday, with a 61% drop in annual profit sending its shares higher as investors cheered its efforts in the face of an oversupplied poultry sector and a recently implemented sugar tax.

The owner of Rainbow chicken and maker of Selati sugar reported headline earnings per share for the 12 months to June 30 of 37.9 cents – down from 96.8c but just above the 37c expected by analysts, institutional brokers estimate system data from Refinitiv showed.

Its shares were up 12.75% to R11.50 at 9.45am – their highest level last since August 12.

“The results are terrible but they’re not as bad as what people initially thought,” said Wayne McCurrie, wealth and investment portfolio manager at FNB. “The big one was sugar. The sugar tax has dramatically affected the consumption of local sugar.”

Its sugar business recorded an earnings before interest, tax, depreciation and amortisation loss of R84.5 million, despite a 5% increase in revenue. Its chicken business reported a 54.1% fall to R214.3 million.

Chicken imports have risen after the lifting of avian influenza bans, RCL Foods said.

“The significant impact of the sugar tax and unabated growing chicken imports dragged down the performance of the agricultural categories.”

The company was seeking a level playing field for local producers from the government and industry stakeholders.

SA’s sugar tax could slash industry revenue by up to $129 million in 2018-19 and prompt restructuring in the sector, the US Department of Agriculture said in a report in March. – Reuters

The results are terrible but they’re not as bad as what people initially thought.

Wayne McCurrie FNB wealth & investment portfolio manager