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Give us this day

It’s easy to not like this company. After the price-fixing scandal on Sasko bread (now being paid off) executives should lower their heads in shame. Very low. At different times in different places royalty had their heads chopped off for increasing the price of bread. Pioneer Food Group [JSE:PFG] has again increased the price of bread (it was cut earlier, in terms of its settlement with South Africa’s competition authorities), but says the “delay in price increases” is the main reason for its 15% fall in operating profit in interim results to end-March.

Overall, its results weren’t bad. Volumes are up around 6%, the way it measures the business, and an interim dividend of 40c/share was paid. Dividends were cut earlier as it grappled with its penalty payments. It has a R350m provision for further penalty payments.

At the bread level it competes with South African bakers, but Sasko seems to be gaining market share. Pasta has some pressure from imports, notably from Turkey, which makes just about everything. As a bit of trivia to show how enterprising Turkey is, it makes the most washing machines in the whole of Europe.

Now Pioneer is looking at increasing capacity, especially for its Ceres fruit juices and Pepsi. It can afford to, with gearing at a fairly modest 23%.

So why do we call this company we don’t like a “buy”? Not because of its demanding earnings multiple of 19,9 times, though it looks better on a forward multiple of about 11,2 times. Nor because of the pathetic dividend yield of 0,7%, given though dividends were stopped and will probably now be resumed.

It’s a buy because it makes the foods we all eat every day: cornflakes in the morning, sandwiches at lunch. The share price is running, up 45% over the past year, but we suspect it will continue to run. We can’t do without our daily bread.
 
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