AVI results for their half year to December

AVI released 6 month interim results this morning which looked impressive.

The Score Sheet. Headline earnings per share from continuing operations came in at 152 cents, up 36% from last year. The company which focuses on the manufacturing, marketing and processing of branded consumer products such as food, beverages, footwear and cosmetics managed to increase operating profit by 30% to R695m. It's South Africa's third largest food manufacturer by revenue bringing in R4.32bn for the year growing 6.8%. The share trades at R30 so annualise 152c and you get a forward P/E of 10. Nice to see companies really growing their earnings into their well performing share prices (the stock traded at R12 in July 08). The interim dividend was increased 28% to 50c a share plus a special payment of 75 cents made in November last year.

Investment case for AVI. They have some great brands in some sectors we really like. We are bullish on the long term recovery of our local consumer (surely you already knew that) so we think they are in a good space. Creamer, coffee, personal care, biscuits and footwear all did really well. Out of all of these, the fashion brands sector sounds the most compelling. This includes their footwear, personal care and apparel businesses and includes distribution rights for brands such as Yardley, Lentheric and Coty as well as Lacoste, Prada and DKNY under their A&D Spitz retail stores. This sector now contributes over R1billion to revenue whilst increasing margins to 23%. Increasing margins plus growing revenue is always a good situation to be in.

Investment case against AVI. I like the luxury goods sector but we already have the luxury (excuse the pun) of having Swiss based luxury goods specialists, Richemont listed on the JSE. Richemont are the second biggest luxury goods company in the world and I would definitely choose them over AVI. AVI's I&J asset is also struggling. A stronger rand and depleting fish reserves is making fish exports more and more difficult. Like I've said before, in a world of choices there are better options in the market in the form of Tiger Brands which has a bigger South African market share and Richemont in the luxury goods sector.