Just three months after having to recall and pull Purity Essentials baby powder off the shelves for safety concerns, the value of Tiger Brands shares has risen nearly 40% on the JSE, outperforming its closest rivals such as AVI.
The share price is up nearly 55% in the past six months.
Tiger is SA’s largest food producer counting Tastic rice and Albany bread among its major brands. But its dominance has steadily been challenged by the proliferation of house brands, with cash-strapped consumers looking for cheaper alternatives.
In early September, it recalled Purity Essentials baby powder that may have been contaminated with traces of toxic asbestos, triggering a drop in its share price before it subsequently recovered when it became clear that the effect on its finances was negligible.
The product recall came at the time when Tiger was still fighting a class-action lawsuit related to a listeria outbreak traced to products from its meat-processing plant a few years ago — a setback that cost shareholders billions in market value.
Tiger, like its peers, has also been facing cost pressures after the Russia-Ukraine war led to a dramatic increase in grain prices earlier in the year. Food producers are also sensitive to the rand-dollar exchange rate due to products they import.
While the recent surge in the share price is off a very low base, it was initially triggered by a better than expected trading update and subsequent release of its year-end results in early December, according to Rowan Williams, director at Nitrogen Fund Managers.
“The company has done a good job of reducing costs to protect margins despite significant cost input pressures. Price increases also offset volume declines,” he said.
“There have been a number of broker upgrades further driving share price momentum following the release of the results.”
The company’s headline earnings per share, a profit measure that strips out impairments and one-off items, jumped 51% to R17.02 in the year to end-September, though the performance also came off a low base due to the pandemic.
The share price ended 1.1% weaker to R216.54 on the JSE on Monday, but is up more than 37% over the past quarter, according to Infront data. It is still, however, way off its peak of more than R440 which is reached in early 2018. AVI is up less than 4% over the same period
Tiger has had to balance enormous input costs as maize and vegetable oil prices spiked globally after Russia’s invasion, with the company reporting input inflation of 18% in its second half. It said the cost of mitigating regular load-shedding is four times that of the Eskom tariff.
Food producers walk a tightrope when they pass input costs on to consumers as customers respond by finding cheaper competitors or buying less.
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