Tiger Brands half year numbers

Tiger Brands released six monthly results to March this morning. EPS higher by 13 percent, HEPS which includes empowerment transaction costs (150.7 million Rand) were two percent lower at 747.9 cents per share. Revenue was only slightly higher, Tiger has the following explanation: "The modest increase in turnover was influenced by price deflation in certain food commodities relative to pricing levels for the same period last year, the impact of promotional discounting in certain categories to restore volume growth, and a continuation of the difficult trading conditions experienced in the previous financial year." The dividend for the first half came in at 281 cents, a little better than last year.

But Tiger also pointed to rising costs, higher fuel and utility costs which impacted margins. And you can't seem to win with Easter either, this year it was three weeks later, which meant that retailers bought outside of their financial year. But that should help the current financial year, not so? Current expectations are for the company to make just shy of 15 ZAR for the full year and payout around half of that. So roughly sitting on a forward rating applied by the market of 12.5x earnings. And just short of a four percent yield. Sounds about fair for me, the market are neither here nor there, the stock is off slightly this morning.

It sounds like the consumer has been winning slightly in all of this: "... the Albany bakery business, experienced a reduction in volumes due to the difficult trading environment, which was exacerbated by significant price discounting by competitors in the market place." But Albany introduced buns, which have been "readily accepted by consumers." The balance of the year is expected to be challenging, but that is echoing almost everyone in the retail space.

The mission statement by the company perhaps is worth noting, knowing that there is a GDP read from South Africa tomorrow. Here goes, Tiger Brands mission is "To deliver revenue growth that is 3% greater than SA GDP plus inflation and achieve our blended operating margin of 15%, thereby achieving real earnings growth and a return on investment which exceeds the company's cost of capital.". So, I guess they fail on the revenue growth target, but beat comfortably on the operating margin number.

Earnings growth for the next two years is expected to be around 10 percent, the dividend expected to grow at about the same amount. This company and share price is not going to fill you with an enormous amount of excitement. Inside of their sector grouping there are some juicy yields on a forward basis, two years out Tiger yields nearly five percent. AVI are about the same and the other three in the sector are perhaps a little too volatile to say with a great deal of certainty (Astral Foods (7.6 % yield), Illovo (3.1 % yield) and Tongaat(4% yield)).

Tiger derives over 50 percent of their EBIT from their grains division, even though as a percentage of total domestic food revenue, it is much lower than that. The Home, Personal and Babycare division is hugely profitable (compared to the others), but had a disappointing year. Groceries sales increased *nicely* but EBIT slipped. What is with the big volumes growth in Peanut Butter (up 12.2 percent) and beans (up 19.9 percent)? Does that kind of tell you all that you need to know about the consumer? Stocking up on cheap essentials, peanut butter and beans, I suggested that is pretty telling of where the consumer is right now.

Possibly the most exciting part of the business is their expansion across the rest of the continent. Sub-Saharan Africa is where the growth is going to come from. Download the presentation and go to page 57 ---> International expansion remains a significant growth vector, and you can see what I am referring to. Sales up 29 percent, EBIT up 22 percent, but still very small contributors to the overall group.

It is not all plain sailing, the chocolate and cocoa business in Cameroon had a tough time. Sumal Foods are a big competitor in Nigeria, they have the bulk of the biscuits market AND they only started 14 years ago in biscuits. This single geography will be key to Tiger Brands African growth. If you do not have a credible plan in Nigeria, then I guess your African growth prospects fall flat. On balance we are happy to hold the stock in our higher yielding portfolios, they have a great track record and a good business.