Research archive for TBS

Tiger Brands is a stock we hold for a few clients in local portfolios, in relatively small size. We started accumulating them in 2005 as the South African economy grew strongly on the back of high commodity prices. Our theory was that aspirational consumerism would lead middle class customers to trade up from basic foodstuffs and household products to the branded-goods that Tiger sells.

Fast Moving Consumer Goods company Tiger Brands warned us on the 9th November that the earnings would fall between 25% and 30%. The main reason was the listeria outbreak and provisions related to it. On Thursday the company released their results and it looks like things have gone from bad to worse with earnings down 26%.

A smallish group of Vestact clients own Tiger Brands shares. To be exact, there are 77 owners, and their combined holdings add up to R15,399,259. To put that in perspective, we have 462 clients who own Naspers, and those holdings are worth an aggregate amount of R266,191,349.

As you were probably made aware of over the weekend, the listeria outbreak in South Africa has been partially traced back to facilities owned by Enterprise, a division of Tiger Brands. The stock is getting beaten down a bit this morning, currently down 8%. Here is the SENS announcement from the company - Tiger Brands To Recall Identified Enterprise Products. This is an extract from the company statement:

On Monday Tiger Brands released their full-year numbers. The share price originally sold off over 3%, but over the last two days it has recovered and then some. Tiger Brands continued the recent theme from corporate South Africa of impairing assets from acquisitions. In Tiger Brand's case, it is a R560 million impairment which is not as significant as we saw from the likes of Brait and Famous Brands. In this case, they had an impairment of R300 million on their Davita asset, which they bought for R1.35 billion in 2011. Then a R250 million impairment on their 49% stake in UAC Foods, a JV with listed UAC Nigeria.

Tiger Brands reported their half year numbers to March yesterday. I saw the CEO, who is now a year in the job on the box with the CFO, who has done some hard yards at that business. They were talking about how tough it has been to operate, suggesting that much unrest in South Africa has been logistically challenging at times. i.e., if a bakery needs to send their trucks out to deliver and roads are blocked, that means that there is an extra insuring cost to the company and by extension to you the shareholder. And ironically, in trying to recuperate the costs, staples prices would have to go up a little.

Tiger brands reported their full numbers to end September, both the CEO Lawrence Macdougall, (relatively new at the business) and the CFO, Noel Doyle, (an old timer at the business) were on the telly yesterday on CNBC - Tiger Brands FY profit up after Nigeria sale. It is tough out there, solid numbers, not altogether any volume growth, steady enough though. It is interesting how the CFO Noel Doyle reckons there is still likely to be heightened cost inflation with regards to their inputs (grains), not all of that can be passed onto the customer.

Peer into any larder or kitchen storage space in South Africa and you are more than likely to find some Black Cat peanut butter, Fatti's and Moni's spaghetti (or penne if you will), Ace mealie meal (or instant porridge), Tastic rice, Golden Cloud flour, All Gold tomato sauce, Oros on the drinks front, along with Energade, Rose's and Hall's, Koo jams as well as Albany bread in the bread bin. A look in the fridge may reveal some Mrs. Balls, Colman's mustard, Crosse & Blackwell Mayonnaise as well as other well known perishable goods such as Renown and Enterprise sausages.

With everything going on we have had to delay the bringing of the Tiger Brands results for a while, apologies. Rather late than never I say. The results themselves are available via the company website, Key financial indicators. As you can no doubt see, the stronger domestic performance, i.e. in South Africa offset the well documented problem business in Nigeria and irregularities at Haco in Kenya, as well as the failure of a key supplier in Mozambique. Remember that not so long ago the company decided not to fund their business in Nigeria any more. School fees. Equally they wrote the business off to nothing, and will carry that business as a discontinued operation.

Yesterday Tiger Brands's, Dangote Flower Mills (DFM) released their 3Q numbers. Revenue is up 15%, cost of sales is down 13% and gross profit is up 49%, so things in the operating department are moving in the correct direction. That is where the good numbers stop though. Thanks to the weakening currency (Nigerian Niara) their operating loss worsened by 66% compared to the same time last year and the loss per share went from 89.89 to 181.31. Given how big their losses have been they currently have negative cash flow which means that they are having to borrow to keep things going. The only good news from the weaker currency is that it makes it cheaper for Tiger to send funds to the Nigerian operation. I don't see the oil price recovering anytime soon and as such I don't see the Nigerian Naira recovering. What is required now is a stable currency, which is tricky given that there is a black market rate now. Expect DFM to be a loss maker for Tiger for the foreseeable future.

As mentioned earlier in the week, Tiger Brands released their 6 month interim numbers on Wednesday. It is a storey of their local division that has done well and the international businesses pulling the group down.

Tiger Brands released a trading update yesterday that Mr(s). Market definitely did not like. This was for their first quarter to end 31 December 2014. There was only a 7 percent increase in turnover to 8.2 billion Rand, the company suggested that tough trading conditions persist locally here in South Africa, as well as across the continent in terms of their business operations. Higher pricing, having to pass on the costs to the consumer, has impacted sales. The weaker Rand has not helped, many prices of raw commodities are set in US Dollars. The company has however still maintained their market share. There is a conference call at midday today, we can get a sense of how the weaker Nigerian market has been impacting the group, that no doubt will be one of the talking points. As the company points out in the trading update, currency issues (as a result of lower oil prices) have created liquidity issues with the currency in Nigeria.

Vodacom have released quarterly numbers this morning, they look pretty average. That is to be expected I guess. Local revenues getting squeezed, CEO Shameel Joosub had this to say in the commentary: There was a significant impact from the 50% decline in mobile termination rates in South Africa, increased competition and we're seeing increased pressure on consumer spending. Data spend continues to be the only bright spot in these numbers, data traffic grew a whopping 62 percent here and an astonishing (off a low base) almost threefold in their international operations. Active smartphones and tablets across the network here in South Africa is 9.5 million devices. Forget about broadband, the people have spoken, the continued investment in 3G and LTE networks will continue to see customers view the mobile networks as their goto for data.

Yesterday morning we received full year results from one of our recommended stocks, Tiger Brands. Before we delve into the numbers let's just reflect on what the share price has done over the last three and a half years. Thanks Google Finance for the below graph.

Here is a good example of companies being proactive in changing their business, Tiger Brands embarked on trying to become to the rest of the continent what they are here. With mixed success it must be said, at least in the short term! Tiger clearly overpaid in Nigeria for a business that was perhaps not what they thought it was, that is however water under the bridge.