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Weak trading update for Q1

Yesterday we received a trading update from Tiger Brands. Let's get straight into it, Here are the highlights.


"Turnover from continuing operations for the first quarter of the current financial year amounted to R7.7 billion. This was 10% higher than the corresponding figure last year.


The overall gross margin showed a decline for the quarter of 1.2 percentage points to 30.5%.


Turnover for the domestic businesses of R5.9 billion showed an improvement of 9%, whereas the Export and International businesses, including Nigeria, grew turnover by 16% to R1.8 billion. Turnover from the Export and International businesses benefited from the weaker Rand exchange rate."



The statement goes on to say that sales volumes increased by 4% while selling prices increased in line with inflation. Although the export business had grown sales nicely this has been offset by pressure on volumes at Dangote Flour Mills.


The share price took a bit of a hit yesterday, I think it is because of the margin decline. The business has kept prices in their grocery division as low as possible to stimulate volume growth. That has worked but in this inflationary environment and a weaker Rand, margins are going to be under huge pressure.


And this is why the share price has been under pressure over the last 6 months or so. The lower end consumer is having a tough time and on top of that the Dangote Mills asset has been hard work. The management is fairly new and I have heard a couple of side swipes about their ability but we have to give them the benefit of the doubt at this stage. The business is such a quality one with such quality brands it reminds me of that Warren Buffett quote which states that you should buy a business that will succeed no matter who runs it because at the end of the day you have very little control over the management.


We continue to add even more so at these attractive levels.


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