Antidumping tariffs for poultry companies

The SA Revenue Service has imposed interim antidumping tariffs of 6%-63% on chicken imported from Brazil. Market leader Rainbow Chicken says it expects the move to provide "some relief", though the regulation does not include leg quarters and is limited to whole birds and fillets.

Reporting its interim results to December, Rainbow also puts the average market price for yellow maize - a high proportion of the feed mix - at about R2600/t, or 66% higher than in 2010.

The company did well despite record maize prices, electricity tariff hikes and high imports (estimated at 16% of the local market), which, with lower disposable income in the pockets of consumers, put chicken prices under pressure.

Rainbow reported operating profit of R3bn, 27% more than for the six months to September 2010. The group has changed its year-end to align with holding company Remgro, hence the change in comparative period. The operating margin was higher at 7,7%, due to the group limiting the impact of higher feed and electricity costs.

CEO Miles Dally says consumer sentiment and the general economy need to improve to get operating margins to "targeted levels".

Headline EPS (HEPS) were 68,4c, up from 59,7c in December 2010. An unchanged interim dividend of 28c was declared.

Noting that performances are generally dictated by commodity prices beyond management control, a report by analysts at IFR, an independent research hub, says the group has maintained a strong balance sheet and "decent" operating margins. It recommends that investors hold their shares.

And though the analysts expect higher plantings for the next maize crop, the final harvest will depend on the weather.

Rainbow's main competitor in poultry, Astral Foods, reported solid yearly results to September, with operating profit up 16% at R683m.

Diluted HEPS grew 19% to 1145c and a final dividend of 505c was declared, 7% higher than the previous period. This brought the total dividend up to 810c from 760c the year before.

IFR analysts says that, like others in the poultry industry, the group faces big feed cost increases combined with limited economic recovery and little improvement in SA to what is called an "unemployment crisis" that limits disposable income.

CEO Chris Schutte, however, sees some "upward potential" for poultry prices.

In view of the uncertainties the analysts say the share "should only be on the radar of investors with a higher risk appetite" and call it a hold.

Country Bird Holdings is the biggest of the rest in a sector with many small operators. It reported poor interim results to December, mainly as a result of a crippling strike at its plant in Botshabelo, Free State.

The nine-week stoppage cost the group R25m and pulled operating profit down 31% to R77,9m for the six months to December. Diluted HEPS fell 45% to 17,8c. An interim dividend of 5,98c was declared, 46% lower than the prior period.

CEO Jeff Wright says a "satisfactory resolution of labour issues" has followed the strike and a more stable environment is expected. He says the group is focusing on the quick-service restaurant market and factory outlets, where sales volumes grew 44% in the period reviewed.

The group was supplier of the year to KFC and Wright says: "It is CBH's strategic intent to become a key supply chain partner of KFC as it expands into Africa."

Though it carries all the risks associated with the industry as well as high gearing, the share offers value, IFR analysts believe. They recommend it as a buy for "more speculative investors".

Source: Financial Mail