Tiger Brands trading statement from their AGM

Tiger Brands released a trading update yesterday that coincided with their AGM, which made for more than interesting reading. "The trading environment continues to be characterised by the slow recovery of consumer spending in the domestic market and rising cost inflation, resulting in an overall market volume decline in the categories in which the Company operates." Does not sound too great for a company's stock price that is up nearly 37 percent over the last 12 months. The stock is flirting with the all time high, which is just shy of 260 ZAR. The share price closed up three quarters of a percent yesterday at 250 ZAR on the nose. This is one of the great investment successes in South African recent history. And excuse me for saying this, but there is nothing overly wow about the company. Baked Beans. Jam. Bread. Flour. Rice. Maize meal.

But wait, back to the trading statement: "The trading performance for the four months ended 31 January 2012 is reflective of this market contraction, although the power of the group's basket of leading consumer brands continues to strongly underpin the group's performance. Net sales have increased due to improved price realisations, thereby minimizing the impact of the volume declines on operating margins." The way I read this, some smart operational moves have seen margins maintained. And when producing food, with a very small margin of error, growing and maintaining margins is key. The rest of the continent in their grand expansion plans has looked robust (I smell the coffee) and the weaker Rand (for the last four months since their year-end) has helped their export business. Not so much in the last few weeks.

The Tiger trading statement concludes: "Despite the difficult trading conditions, headline earnings per share is expected to show satisfactory growth for the year ending 30 September 2012 as compared to the 2011 reported earnings." Now what is in an interpretation? Satisfactory? The analyst community have that pencilled in at just shy of ten percent earnings growth. Which still means that on a forward basis the stock trades on 14 and a half times earnings. The tricky part as ever to work out, or estimate, is where should the price be right now, based on projected growth of around 14 percent per annum for the next three years. That would mean that in roughly 30 months, at the current share price levels, the earnings multiple would unwind to just 11 times. Which would please some old timers no doubt. Problem is that it is 2012, early in the calendar year. Still, we buy the story. The stock is not wildly expensive. And the quality of the company always attracts talent, I will always maintain that. The opposite is true too.