Tiger Brands 1Q numbers - New Era

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.

Under the sink you are likely to find some Jeyes fluid, Bio classic, and in the bug zapping drawer some Doom and Peaceful sleep to ward off the bugs during summer. Into the bathroom and you will find old favourites such as Ingram's and Kair, as well as Perfect Touch and Dolly Varden. I remember using the glycerine (it is sweet) to dip pacifiers into when my kids were younger, it made the "dummy" taste that much better. Talking babies, feeding time means Purity, provided your baby is of the "right" age. Lastly, for those of you with the sweet tooth, you are familiar with Beacon chocolates, a Durban born confectionary business.

These products are all under the stable of Tiger Brands, the good old fashioned Tiger Oats has been a generational favourite for breakfasts through the ages in South Africa. Tiger Oats traces its roots back to downtown Jozi, where in 1920 the business was founded by Jacob Frankel, along with the help of a fellow by the name of Joffe Marks. The company used to own both Spar and Astral, unbundling them along the way. As well as Adcock Ingram, if you had held all of these businesses through to today, even from two decades back, you would certainly have "done very well" for yourself. Tiger has delivered superior returns to their clients over the decades.

Recently the company has stumbled along, they did in essence exit Nigeria after a three year nightmare, the way the situation looks in Nigeria now, perhaps for the better now come to think of it. Currency devaluations, the flourishing parallel market (call it black market or "real" market) and general government flopping may well lead to a recessionary environment in the West Africa powerhouse. They still do have a business in Nigeria, just not the milling business. Tiger owns 100 percent of biscuit business Deli foods, and have a 49 percent stake in UAC Foods, a business that has a stake in Mr. Bigg's, I thought that was owned by Famous brands. Perhaps those are the shareholders, indirectly there is Tiger and directly, Famous Brands.

This is not to say that "things" are better here in South Africa. It is however their home market, they certainly understand it better, as do their customers. I often think that Tiger will benefit from cross border trade across the continent, and do bite sized acquisitions along the way in their core markets, maybe the Dangote Flour deal was their Arnheim, the proverbial bridge too far.

That is in the past, and whilst we look ahead to the future of the business, we should recap their results quickly. These results were for the six months to end March 2016. By following the link you can see the presentation. Volume growth of just one percent was better than one of their peers reporting earlier in the week, the Pioneer Food Group, which experienced a 5 percent decline. Perhaps a strong marketing push in an environment that has been relatively tough, supermarket bosses have urged consumers to keep costs low by doing one thing or another. Whitey Basson, the CEO of Shoprite had suggested that the drought was not an excuse to pass the costs onto the consumer.

Both Phil Roux of Pioneer and outgoing acting CEO Noel Doyle of Tiger agreed that you couldn't pass the full extent of the price increases onto customers, obviously there will be margin compression, 70 basis points was shaved off on that score. Good cost saving, from the aforementioned Doyle (count them beans Noel) added 80 basis points, score for the Tiger. Perhaps the onus should be passed onto shareholders to absorb that, in the interest of social cohesion, as tricky as that all sounds. All in all, a satisfactory result was delivered in a very trying environment.

It is likely to remain trying for Tiger Brands, as well as their competitors. Pussy cat or roaring 350kg's of feline fury? There is likely to be more inflationary pressures rearing their ugly heads from time to time. The company will focus heavily on costs, the new chief Lawrence MacDougall (Doyle moves back to Chief Operating Officer) has over three decades of experience in fast-moving consumer goods, having worked for Mondelez and Cadbury's (same-same company, Mondelez acquired Cadbury's). Kraft and Mondelez split in 2012, separate businesses were formed, that is another story entirely though.

The market initially reacted negatively to the results, after a few hours and no doubt the presentation, the stock has had a flurry recently. Tiger was up nearly four percent at one stage yesterday. We envisage a tricky outlook for the group over the coming months, we do however think that year on year comparisons may become a whole lot more palatable this time next year, all things being equal. And by that I mean no new shocks to the system, no massive currency swings as a result of a political disaster, or more bad weather related activity. Those are out of your control. We continue to recommend the king of the food market in South Africa, strong brands will see them through to another few decades of growth, plus African consumer activity should eventually feed to a larger export base. for now we continue to hold, we will accumulate on weakness.