Tiger Brands: In Every Crisis There Is Opportunity
To say that the outbreak of Listeriosis in South Africa is a crisis would be true but a more accurate word that comes to mind is tragedy. Thus far, there have been around 170 deaths that have occurred as a result of the outbreak, showing that the impact goes far beyond corporate profits for the companies connected. Our sincere condolences go out to those people who have lost friends and loved ones due to this deadly virus.
On Sunday 4 March 2018, SA Health Minister Aaron Motsoaledi announced that the outbreak of Listeriosis had been traced to an Enterprise Foods facility in Polokwane in the Limpopo. Enterprise is a business and brand that is a subsidiary of listed FMCG giant Tiger Brands.
A look at the TBS annual report reveals Enterprise being classified under the Value-Added Meats Products business, a division that contributed R2.2 billion in revenue out of the group’s total R31 billion for the financial year ended 30 September 2017. We also see Enterprise holding the number one position in the chilled processed meats division.
While the company houses many well known and admired brands that rank in the top quartile of it’s categories, the company may see a negative impact from the fallout from the crisis. Some may recall the company being implicated in the bread price fixing scandal in late 2007 and while the market reaction/impact on the TBS share price is yet to be seen, the scandal may result in further share price pressure, adding to what has been experienced recently.
The impact on the share price as a result of the price fixing scandal saw TBS go from R145 in November 2007 to a low of R100 in February 2008 – followed by a 50% rally into year-end 2008.
Recently the company reported a voluntary trading update for the 4 months ended 31 January 2018 where it reported group revenue declining by 5% driven by overall price deflation of 1% and volume declines of 4%. The company also stated that “the performance for the remainder of the 2018 financial year is likely to be impacted by the slow start to the year” – now this will most likely be exacerbated by the scandal.
We were fortunate to have called a “short/sell” on the share the day before the company released the voluntary trading update and with the share trading on a price-to-earnings ratio of 19 times, the temporarily lacklasture growth may put further pressure on the counter.
A look at the weekly chart sees the price having given a false breakout at R460, only to pull back into the long term channel. The next level of support comes in at R395 followed by R363 and R318.
As at pre-market on this Monday 05 March 2018, I just do not know what the market’s reaction will be, but if there is further downside to the share over the next few weeks or several months, then this could create an opportunity to consider TBS as part of a long term portfolio should the impact of the listeriosis crisis be reflected in the valuation and share price.
While this is still a tragedy, remember, in every crisis there is opportunity.