Samantha Enslin-Payne
Astral Foods’ interim earnings would be lower due to increased costs and a proposed settlement with the competition authorities regarding an investigation, the chicken producer warned on Friday.
In a Stock Exchange News Service announcement, Astral said there was a reasonable degree of certainty that its earnings a share and headline earnings a share for the six months to March would be between 16 percent and 19 percent lower than the previous comparable period.
The drop in earnings was mainly due to increases in feed prices and other input costs that were not fully recovered in selling prices.
The decrease also included a provision for a proposed settlement, still to be reached with the Competition Commission and subsequent ratification by the Competition Tribunal, on various matters under investigation. The company said it would provide further details when it reported its interim results on May 14.
Thato Mashigo, an equity analyst at Cadiz Asset Management, said the decline in Astral’s earnings was somewhat unexpected as the market had anticipated the group to report flat earnings for its first half to March. He added that the first half of Astral’s financial year was traditionally its best as December was a “huge month” in terms of consumer demand for chicken.
The maize price in the past four years has doubled from about R1 500 a ton to about R3 000 a ton. Mashigo said a key driver for a poultry producer was the cost at which it could buy maize, versus the price at which it could sell chicken, neither of which the company had any control over.
In areas where it does have control, such as the efficiencies of farms, Astral did exceptionally well, Mashigo said.
Also impacting on earnings is a proposed settlement with the Competition Commission.
Mashigo said this related to allegations of price collusion in the Western Cape in about 2005, which occurred under previous management.
He said the size of any settlement was unknown, but given that it would be a percentage of the revenue of a division in one region and it was a once-off cost, it might not be hugely negative for the group in the long term.
But he said Astral had not stated how much money it was putting aside for a settlement, and it might turn out that the provision accounted for a large part of the decline in earnings.
Reuben Beelders, the chief investment officer at Gryphon Asset Management, said the weakness in Astral’s share price could be a buying opportunity. “We like the company from a dividend yield perspective. It is very cash generative and a good dividend payer.”
He said if the provision made by Astral for a settlement with the Competition Commission was excluded, its expectation was for earnings to have declined by about 5 percent.
Astral’s share price fell over 5 percent in early trade on Friday, but ended the day 1.8 percent lower at R122.40.
Beelders said the stock regained some ground as investors realised that any Competition Commission payment was a once-off event.