AVI results, the luxury part is driving the business

We had some good looking 6 month numbers from AVI, a company you have grown to expect performance. If you are unaware here is how they describe themselves and their strategy. "AVI's extensive brand portfolio includes more than 53 brands; 33 owned brands and over 20 international brands under license. Single-mindedly focussed on their growth and development, our brands span a range of hot and cold beverages, sweet and savoury snacks, fresh and convenience foods, out of home ranges, cosmetics, shoes and accessories, and apparel.".

Brands such as Five Roses, Frisco, Bakers, Willards, I&J, Lentheric and Spitz fall under their umbrella. Let us look at the numbers. Revenue from continuing operations were up 9% from the previous comparable period to
R4.49 billion. Operating profits were up 27% to R855 million, great margins for a business of this nature. This equated to headline earnings per share which were up 32% to 194c.

Let's look at the various divisions. Entyce which covers the hot beverage type products increased revenues by 4.4% to R1.3 billion (29% of the overall mix). The increase was mainly attributable to higher selling prices due to increases in commodity prices while tea volumes increased nicely due to promotional activity. This division brought in R245.9 million in profits while margins actually decreased from 20.8% to 18.9%.

Snackworks which includes biscuits and chips grew revenue by 8.8% to R1.29 billion (28% of the mix). Profits rose 12.6% to R203 million with operating margins growing from 15.2% to 15.7%. The increase in revenues was largely due to an increase in sales in biscuits while selling prices also increased. Factory efficiencies have also been improving which is a good compliment to management.


I&J which has struggled in the past increased revenues by 11.9% to R749.1 million (17% of the mix) thanks to currency swings and volume increases.
This is the one part of the business I do not like because it is reliant on fluctuating catch rates from a depleting ocean that has specific quotas. It is responsible for R100 million worth of profits.

Fashion Brands did really well as you can expect with the latest retail numbers we have been seeing from the likes of Richemont and the clothing retailers. Revenues rose 11.4% to R1.15bn while profits increased by 33.5% to R316 million. It is the biggest profit driver in business now. profit margins increased nicely from 23% to 27.6%.

So how do the valuations look? The stock trades at R45.50. Annualise these numbers and you get a valuation of 11.7. Importantly the dividend cover has decreased which means we could get a payment of 258c, a great yield of 5.7%.

The company have a great mix of brands and a very good track record. The share price has reflected this coming from R12 in July 08. The valuations look good. It may not be the most exciting of businesses (although the luxury goods element has brought an extra element) but I'd certainly buy at these levels if you want a stable dividend payer in the account.