Chicken and feed producer Quantum Foods is the best-performing JSE-listed stock this year with its share price up more than 200%, despite it making a loss in its most recent financial year.
Amid high input inflation and constrained consumers, food producers have struggled with profitability in recent years. But Quantum is experiencing a bidding war that has taken its share price from R4.50 to as much as R15.50.
The company produces Nulaid eggs and day-old chicks that are sold on to other poultry farms to rear and slaughter.
There has been a frenzy in buying the remaining 12.8% free float as the company appeared to fear there was an undeclared bid to take over majority control of it.
A block trade of shares was sold for R15.50 on Tuesday, 244% above the March 1 price. The buyer is unknown.
The share price, which closed at R13 on Tuesday, far exceeds its intrinsic value, said Smalltalkdaily analyst Anthony Clark, who believes the share is worth R5 at best.
Clark has been following and analysing Quantum since 2014 when it was unbundled from Pioneer Foods.
The Quantum share price also spiked in mid-2020 when shareholder factions were trying to gain control of the business.
In recent weeks company chair André Hanekom and outgoing CEO Hennie Lourens have spent about R9-R10 a share to increase their stakes.
This shows the length to which those involved in the company would go to secure its independence, said Clark.
“Given what I know about the underlying chicken, egg and animal feed markets, there is no way that the underlying earnings from Quantum Foods this year or next year justifies the share price.”
The bidding frenzy is keeping the share price at these levels, he said.
Unsolicited offer
The latest saga began when Astral, SA’s largest chicken producer, sold its 9.8% stake in the company in March to Country Bird Holdings (CBH), which made it an unsolicited offer and then grew its stake to hold 15.8% of the company.
CBH became the kingmaker between the other two large shareholders. These are Aristotle, part of Luxembourg-based private equity fund Silverlands, which owns just less than 35%, and Braemar Trading, linked to the infamous Zimbabwean tobacco family the Rudlands, which has 30.8%.
There was concern in the company that Braemar and CBH would work together to jointly gain more than 50% control, though this would not be entirely legal.
CBH says it is not looking to increase its stake.
But fears grew when Hamish Rudland of Braemer wrote to Quantum in early March and said he wanted Hanekom removed as chair and two directors, including Gary Vaughan-Smith of Aristotle, removed from the board. Rudland wants a director seat.
CBH and Braemer together own almost 47% of Quantum.
Since then the chair and outgoing CEO have invested personal money at high prices to increase their stakes in the company. Lourens spent R1.258m on shares, with most costing R10 apiece. Hanekom spent about R13m in March 15-28, buying up whatever shares he could at R9-R10. He is the fourth-largest shareholder, though it is not yet clear exactly how big his stake is.
“For Mr Hanekom ... to acquire millions of rand of shares at increasingly higher prices shows what lengths the company will go to keep its independence,” Clark said.
“I do not see that anyone paying these sorts of prices will ever make a justifiable return in terms of the company’s earnings profile or its dividend repayments,” he said.
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