Even the JSE’s "big bird", Astral Foods, can’t wing it in this jittery market.
Astral — Africa’s biggest poultry operation — issued an upbeat trading statement on Wednesday indicating earnings for the year to end-September would be up at least 80%.
The trading update is not terribly surprising since trading conditions in the poultry sector have turned for the better — at least from the period when the sector was beset not only by prolonged drought conditions (which had the effect of pushing up feed prices) but also an outbreak of Avian influenza.
In short, Astral expects headline earnings to be at least 85% up on the previous year — implying a bottom line figure of around R35/share.
Notwithstanding the strong trading update, investors marked down the price of the group’s shares.
It’s not as if Astral’s shares are "expensive". They trade on a forward earnings multiple of just seven times, and dangle a mouth-watering forward yield (assuming a two times dividend cover) of around 6.8%.
What might have spooked the market was Astral’s admission that poultry sales volumes and selling prices came under pressure towards the end of the 2018 financial year due to weakened consumer demand. The group cited increases in the fuel price and the VAT rate as negative influences.
Astral has proven over the years to be a tough old bird when it comes to weathering difficult trading conditions. Whether the share is offering great value at these levels is a question that investors may only be willing to answer once a more detailed trading statement is released.
Gold miner Pan African Resources has an interesting underground project that in another time would be a no-brainer to bring quickly into production.
The company, however, is constrained by the closure earlier in 2018 of its Evander underground mines with the loss of 1,635 jobs, and the loss of investor appetite for more deep-level mining at the company which took a R1.78bn impairment against the asset.
There is, nevertheless, a high-grade block of ground that can be easily accessed from Evander’s 7 shaft that was closed in May.
Pan African reckons the Egoli project could deliver 23,500oz of gold a year in the first four years of development and then 79,000oz annually over the next seven years at an all-in sustaining cost of R300,000/kg.
While not putting a price tag on the entire project, peak funding would be R870m.
Pan African has just completed its R1.7bn Elikhulu tailings retreatment project at Evander and is keen to develop the Royal Sheba prospect at Barberton, which has the potential to become a profitable, opencast mine with a very quick return on project capital.
So what’s to become of Egoli? Pan African CEO Cobus Loots suggests there could be a partnership to bring it into production. Finding a group willing to invest in an underground mining project in SA could be a challenge. There are scant new underground gold mining investments in SA so any success in attracting partners to this project would be a rare vote of confidence in the gold sector.
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