Tiger Brands trading update

The Tiger Brands share price has been very bumpy of late. It peaked at R335 a share on the first day of the year then dropped throughout January to around R290. It slowly started recovering until the trading update last week which knocked the share price 8%, back to R290. It has since recovered, now trading at R305. We looked at the trading update but not in full detail, last week was very busy. What has seemed to spike the price again was the Pioneer update on Friday and then of course, Berkshire Hathaway paying a 20% premium for Heinz.


Tiger Trading update. There were no numbers mentioned. Obviously the change in earnings is not big enough to legally announce a percentage. What it did say was that trading conditions have been tough on the back of a constrained consumer, mostly because of high inflation. They also give us some clarity on the financial impact of the Dangote Flour Mills acquisition. In the short term it will be earnings dilutive and benefits will only be seen over the next two years. Short term speculators do not like that kind of news.

You see, this is a perfect example of inflation directly impacting the consumer at the heart of their necessity requirements. It is tough out there and getting tougher. But what does this mean for the food producers? There is no doubt that higher prices are going to negatively affect volumes. But these are necessities so the impact will fall on less defensive discretionary spend.


As for the long term picture, we are still optimistic. The growth in Africa is very exciting. As Massmart, Shoprite and Pick n Pay expand they will bring Tiger with them. Tiger fortunately do not have to build the shopping malls. They do have logistical challenges and producing directly in other countries is clearly a growth opportunity as with the Dangote Mill acquisition.