Investec Asset Management analyst John Thompson says "lofty" valuations have been applied to certain food companies. He expects Tiger Brands, AVI and, to a lesser extent, Pioneer to do relatively well if the rand remains at current levels.
AVI is reporting good hake catches, and firmer deciduous fruit prices will be good for Tiger Brands, which exports canned fruit through its subsidiary Langeberg, in which it bought out the remaining interest recently.
Sugar producer Tongaat Hulett will do well, he says, depending on sugar prices and the fortunes of currencies such as Mozambique's metical and those in other countries in which the company operates.
Tongaat Hulett's ace could be its huge property portfolio. There are signs that one or more big deals are in the offing.
"Property valuations are low and there have not been a lot of sales, but if they can push through a big deal and apply the proceeds to their sizeable debt, they will do well," says Thompson.
For exporters, the eurozone problems might spell trouble.
The Agricultural Business Chamber's John Purchase says Europe's woes put exports from SA under pressure. Europe takes 35% of all SA exports, with agricultural produce such as food and wine generally higher than that.
He believes though that the rand's 20% depreciation against the euro recently makes life easier for exporters.
"The food business will still be a good investment sector. Though the returns are not massive, they are consistent and reliable. And though there are problems in Europe, exports to the likes of China and Indonesia are improving all the time."
Thompson says he is "not a poultry fan" with maize prices high and the issue of Brazilian imports still unresolved. Maize is the main component of chicken feed.
Purchase says the imports are putting pressure on local prices and producers are now running out of the cheaper maize they managed to procure through hedging.
Source: Financial Mail
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