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SHARE WATCH: Focus on food firms as SA braces for price hikes

Dec 04 2015 08:45
* Kirk Swart

Cape Town - With food prices set to increase due to the current drought, food companies are likely to pass the price inflation on to consumers.

This is but one of the factors that have led the South African Reserve Bank to increase its repo rate to 6.25%. Whether the rate increase will dampen inflation remains to be seen. With food price inflation all but certain, this week’s share watch focuses on South African food and agricultural companies.

1. Zeder [JSE:ZED]

Zeder is an agricultural holding company invested in the broad agricultural industry with stakes in CapeSpan, Quantum foods, KaapAgri, and Pioneer Foods. Zeder's total portfolio value grew from R13.4bn in February 2015 to R16.2bn in August 2015.

Zeder's biggest investment is a 27.1% interest in Pioneer Foods. According to their results for the six months between February and August 2015, Zeder's Sum of The Parts value is R10.37 per share. On 29 September 2015 it was R10.22.

During the period leading up to August 2015, Zeder's earnings per share was increased by 4.4% compared to the 13.7% for the six months ending August 2014. Zeder is trading at a price earnings ratio of 48.

2. RCL Foods [JSE:RCL]

Rainbow Chicken merged with FoodCorp in 2013 to form what is now known as RCL Foods. Today, RCL Foods is a leading African food producer with a market capitalisation of just under R14bn and 20 479 employees throughout Southern Africa.

RCL owns a number of household brands such as Rainbow, Yum Yum Peanut Butter, Ouma Rusks, Bobtail, Selati, Epol, and many more.

RCL's share price has been moving sideways for the better part of the last few years. However, they might have turned the corner as they managed to turn 2014's R332.6m loss into a R964.5 profit for the year ending June 2015. RCL is also attractively valued at a price earnings ratio of 13.

3. Rhodes [JSE:RFG]

The Rhodes Food Group is a newcomer to the JSE as it listed as recently as October 2014 on the JSE main board. With brands such as Rhodes, Bull Brand and Spekenham already under management, the Rhodes Food Group is continually looking to grow its brand profile.

Rhodes currently has seven state of the art production facilities, a dairy and a pineapple farm. If their maiden results are anything to go by, Rhodes will have a long and successful future as a listed company.

For the year ending 27 September 2015, Rhodes increased their turnover by 23.7% to R3bn and profit after tax increased by a 105% to R169.8m. Rhodes declared a maiden dividend of 24.8 cents per share.

4. Pioneer Foods [JSE:PFG]

Pioneer Foods is a leader in the foods and beverage industry with well-known household brands such as Sasko, Bokomo, Liqui Fruit, Marmite, Bovril and several others. Pioneer operates in South Africa and two other African countries and exports its products globally.

The Group structure, as it is known today after the merger between Sasko and Bokomo, was listed on the Johannesburg Stock Exchange in 2008.

In a recent earnings guidance for the year ending September 2015, Pioneer indicated that their headline earnings per share from continuing operations is expected to be between 28.8% and 32.5% higher than the same period in 2014.

Earnings per share are expected to be between 32.6% and 36.4% higher than in 2014.

5. Quantum Foods [JSE:QFH]

Quantum Foods is an agricultural spin-off from Pioneer Foods that specialises in animal feed, eggs and layer livestock, broilers and related businesses. They also operate outside of South Africa in Zambia and Uganda.

Quantum Foods acquired one of the two biggest egg producers in Zambia and operations in Uganda comprise of parent rearing, parent laying, hatchery and a feed mixing facility.

For the financial year ending 30 September 2015, Quantum showed a much improved set of results with headline earnings per share increasing to 54 cents from 11c in 2014.

Revenue decreased by 2% to R3.468bn from R3.560bn in 2014. Trading at a price to earnings ratio of 5.46, the market seems to need more convincing about Quantum's ability to create shareholder value.

Do you agree with Kirk's stock picks? Send us yours and tell us why.

* Kirk Swart is an analyst at Overberg Asset Management, an Authorised Financial Services Provider (No 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.

Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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