Pioneer Foods (Buy, TP ZAR 183/share) - H1 17A result review: Muted sales growth and raw material costs pressure drive EBIT margin to 5 year lows
​PFG reported H1 17A sales at ZAR 10.2bn, +1.7% y/y but 3.5% below ACe at ZAR 10.5bn. The South African business (85% of group sales) increased by only 4% y/y, while the International business (15% of group sales) declined by 11% y/y, impacted by a raisin crop shortfall, weaker African exports and a stronger ZAR.
EBIT margin dropped to 6.9%, levels last seen in FY 12A, driven by unfavourable maize procurement positions taken in 2016, coupled with a significant decline in the International division margin (EBIT margin 5.3% in H1 17A vs. 17.4% in H1 16A).
Outlook – Lower price maize to impact numbers only from June 2017, hence Q3 17e likely to also see some margin pressure. Overall, H1 17A weakness is in line with earlier released guidance but muted sales growth likely to be viewed negatively by the market; and investors’ focus will likely be on management commentary on margin outlook in H2 17e and FY 18e in our view.
Pioneer Food Group is a Fast Moving Consumer Goods (FMCG) group based in South Africa. Co. is engaged in the manufacturing of food, beverages and related products for human and animal consumption. Co.'s operations are organized along three main divisions: Essential Foods (wheat and maize products, trades in rice, beans, lentils and dried vegetables); Groceries (cereals, rusks, biscuits, cake mixes, baking aids, instant mash potato, dried fruit products, nuts, spreads, dehydrated vegetables, salads, fruit juices, carbonated soft drinks and fruit concentrate mixture); and Pioneer Foods (tomato sauces and ketchup, frozen foods, seafood tinned products, tinned food, instant meals and noodles).
Established in 2007, Arqaam Capital is a specialist emerging markets investment bank, bringing regional and international product offerings to the emerging markets. Arqaam Capital combines international best practice with expertise in the markets in which we operate. Our primary role is to provide financial intermediation and create investment opportunities for frontier and emerging markets investors looking to invest in their own markets and abroad, as well as international investors seeking opportunities in target frontier and emerging markets. Arqaam Capital is headquartered in the Dubai International Financial Centre (DIFC), with additional offices in Libya, Lebanon, Egypt, and South Africa.
Arqaam Capital's research platform provides the largest coverage footprint of MENA equities and one of the largest on the African continent with a total of 300 stocks under coverage. Arqaam Capital is ranked as one of the leading research providers in the region - a reflection of its broad coverage universe, its in-depth and high quality research, as well the compelling investment ideas that the team generates. The analysts closely analyze their sectors and issue in-depth company and sector research while the strategy team connects the micro with the macro, focusing on index analysis, macroeconomics and strategy research.
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