To the uninitiated, AVI might appear as a somewhat boring company, producing largely unexciting earnings and dividend growth from its diverse portfolio of interests.
But that view misses the point, which is that AVI is an exceptionally tightly managed company that manages to extract solid earnings and dividend growth regardless of the ambient economy. Every so often, as with the 2024 financial year, there is a pleasant upside surprise, and usually that coincides with the declaration of a meaningful special dividend.
But in the main, AVI can be relied on to produce solid, if unexciting, growth through good and bad times. And it’s fair to say that SA’s economy has been stagnant for several years now, and yet AVI has still managed to extract some reasonable earnings growth.
It’s a testament to quality management with an intelligent business portfolio mix. This model has withstood not only lacklustre ambient economic growth but also unwelcome bids for all or parts of the business over the years.
This model has withstood not only lacklustre ambient economic growth but also unwelcome bids for all or parts of the business over the years.
For the financial year ended June 30, group revenue rose by 1% off a very high comparative base in financial 2024. Gross profit margin rose by 2.4% to 42.7%, with gross profit 3.4% higher at R6.83bn. Selling, general & administration expenses fell by 1% to R3.27bn, leaving operating profit 7.8% higher at R3.56bn. Operating profit margin rose by 6.7% to 22.7%. The effective tax rate rose slightly to 27.4%, and headline earnings per share rose by 6.1% to 729.1c.
Segmentally, there were some major differences between financial years 2024 and 2025. Entyce Beverages, the tea and coffee business, saw operating profit growing by more than 24% to R1.6bn, while Snackworks’ operating profit (crisps and snacks) was virtually static at R1.29bn. I&J, the fishing company, saw operating profit rising by more than 20% to R240.8m. Collectively, these three food-related companies contributed more than 88% of group operating profit. Apart from I&J, which is subject to the vagaries of fishing, these businesses provide the stability of the group.
Fashion Brands, comprising personal care and footwear and apparel, saw its operating profit decline 25% to R420m, with personal care (body sprays and so on) declining 28.8% and footwear and apparel dropping 22.6%. Fashion brands, by their discretionary nature, have not fared as well as the less discretionary tea, coffee and snacks businesses.
In the current financial year, the same relatively poor ambient economy can be expected, though lower interest rates may have a slightly positive impact on consumer behaviour, especially regarding discretionary spending. It’s always difficult to forecast what will happen at I&J, as there are many moving parts to this business, but a repeat of last year’s strong performance seems unlikely. A critical part of I&J’s business is demand for abalone (perlemoen) from East Asia. This component remains weak, with few if any signs of improvement.
More ahead
The December trading period is pivotal to any clothing and footwear retailer, and AVI’s businesses in this sector, notably Spitz, Gant, Kurt Geiger and others, are no exception. However, there will definitely be relief for the clothing & footwear businesses generally with the closure of the Green Cross footwear brand. This brand had been a drag on the group for some time, and its removal will be positive. Additionally, the supply chain disruptions that occurred last year are unlikely to be repeated this year.
Beyond the current financial year and assuming little or no change in the ambient economy, AVI seems likely to carry on extracting solid, if perhaps unexciting, earnings growth, punctuated every so often by a nice special dividend.
At the current share price of R100.67, AVI is trading on a historical price-earnings (PE) of 13.8 and a dividend yield of 6.2%. Not only is this a reasonable PE ratio for a share of such high quality, but the very high dividend yield is also only slightly lower than one can now get in a money market investment.
• Gilmour is an investment analyst
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