The share price of poultry producer Astral Foods rose 8.4%, the biggest jump in more than a year, after it announced that it expected its earnings for the year to September to double.
Astral said in a trading update on Wednesday that headline earnings per share was expected to rise 90%-100% for the year to September.
Anthony Clark, an analyst at Vunani Securities, said the September 2018 financial results would be the peak of Astral’s earnings, largely because they would face higher feed costs. He said poultry producers had expected to receive exemption from VAT on their products, but that did not happen.
“We have a great business here with an excellent management team, but higher input costs mean the upcoming 2018 results will be the best for them in this cycle,” he said.
“The first half of 2019 will benefit from firmer chicken prices in the festive season and also from the last of their R1,900 per ton yellow maize input cost procurement. But the second half will see higher input costs, lower margins and tighter earnings,” said Clark.
The price of maize was about R2,364 per ton on Wednesday, more than 24% higher than R1,900.
Clark said that from its lowest point the price of yellow maize had climbed 28%.
“No company in the current consumer environment involved with maize as an input can absorb this kind of increase. Consumers can’t take such a price increase either, so margin has to give. We’ve seen this at the staple foods unit at Pioneer Foods,” he said.
According to Clark, Astral bought 800,000 tons of maize a year so the price increase added R370m of extra input costs a year on simple terms.
Chris Logan, chief investment officer at Opportune Investments, said Astral was the best-run poultry producer in SA, but it had been let down by factors beyond its control, including “high taxes, a disappointing outlook for the country’s economy and bad management by the government”.
“Astral and other consumer stocks have collapsed on the JSE, the place where money goes to die,” he said.
“The maize price has come up quite a bit recently. I’m concerned that this will lead to higher poultry product prices, which I don’t think consumers will be able to stomach,” said Logan.
Astral’s share price was R197.95 at close of trade.
Commenting on the share price, Clark said the “stock had been a stunning performer for me since January 2017 when it was at R124.50. By November 2017, it was R203.65. I saw value to R350 and it got to R339, but then it sank heavily.”
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