When consumer goods group Libstar made its debut on the JSE in May 2018, it looked a promising proposition for investors, with a R7.6bn market cap and ambitions of dominating parts of SA’s food and beverage sector.
Its diverse portfolio — which includes well-known brands such as Lancewood, Denny Mushrooms, Goldcrest and Cape Herb & Spice — paired with its bold strategy of acquisitions, product innovation and market expansion — made for an enticing prospect.
But fast forward about six years, and Libstar’s share price has tumbled 75% from a peak of R12.34 to just R3.10 on Friday, giving it a market capitalisation of just R2.1bn.
Even consistent dividend payments failed to offset the stock’s decline, with payouts to shareholders having dropped from 25c a share in 2020 to just 15c in 2024.
A combination of falling earnings, weak market sentiment and company-specific challenges contributed to the group’s unprecedented decline, threatening shareholder confidence.
Since its founding in 2005, the group pursued an aggressive growth model, acquiring small and medium-sized food and beverage businesses with strong management and integrating them into its operations. This strategy rapidly expanded its product offering, supply chain capabilities and customer reach.
By the time it listed, Libstar had grown into a major supplier of branded and private-label products, exporting to 57 countries while maintaining strong relationships with key retailers and food service providers.
At first the group showed signs of resilience. In its first year as a public company, Libstar reported a 12.5% increase in revenue to R9.8bn and saw its profit after tax grow 1.1%. It even declared a dividend of 22c a share.
• Grew too fast;
• Hammered by Covid-19; and
• May have taken on too much debt.
— Takeaways:
Despite its promising start, cracks began to appear in Libstar’s financial health. While the company continued to increase revenue, its profitability began to stagnate. By 2019, earnings had started to decline, and Libstar’s debt was rising. The company had spent aggressively on acquisitions and capacity expansion, but those investments were not generating the expected returns fast enough.
The shock of the Covid-19 pandemic in 2020 exposed these weaknesses. While food producers generally fared better than other sectors during lockdowns, Libstar struggled with supply chain disruptions, rising input costs and shifting consumer habits. That year, normalised earnings before interest, tax, depreciation and amortisation fell 5% and normalised headline earnings per share dropped 13.8%. The company still managed to pay a 25c dividend, but behind the scenes, the financial strain was building.
Over the next few years to 2023, gross profit margins fell further, cash flow weakened and net debt remained stubbornly high, fluctuating between R1.1bn and R1.4bn. While revenue growth remained positive, climbing to R12.4bn in 2023, the group seemingly struggled to translate that into a decent profit.
During that period, in September 2022, the company had to deal with a fire at its large mushroom farm, which broke out during a staff protest over higher wages.
The situation worsened in 2024 when Libstar suffered the devastating loss of a key customer that had been with the company for more than 30 years. Following global procurement trends, the customer decided to diversify its supplier base, reducing its reliance on Libstar’s Finlar Fine Foods. This move resulted in a R400m impairment, dealing a major blow to Libstar’s earnings, the group said recently.
Libstar also had to write down the value of Denny Mushrooms by R98m. These impairments, combined with higher consulting fees, salary increases and rising operating expenses led to a 7% increase in costs that strained profitability. The company’s expense margin increased from 16.5% in 2023 to 17.2% in 2024.
Libstar’s executive insists the company is still on a path to long-term growth, pointing to ongoing efforts to simplify its operations and strengthen its balance sheet. In 2024, the group took steps to integrate three divisions into a single ambient products subcategory, hoping to improve efficiency and market alignment.
It has also scaled back its capital expenditure, reducing it from R384m in 2022 to R244m in 2023, as it focused on optimising previous investments rather than making new ones. Cash conservation and interest cover improved in 2024, supported by proceeds from the sale of Chet Chemicals, helping Libstar meet its leverage target for the year.
Still, these efforts may not be enough to reverse the company’s long-term downward trajectory. While revenue grew by 3.1% in 2024, this was driven primarily by selling price inflation and product mix changes, rather than volume growth. Sales volumes fell 3.2%, indicating weaker demand in the retail and food service channels.
The big question now is: can Libstar survive the storm? The company is at a crossroads. Though it still has strong brands, a diverse product portfolio and a significant presence in domestic and export markets, its financial and operational struggles are a worry for investors.
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