Tiger Brands (HOLD, TP ZAR 415/share) - H1 17A result review: Sales growth impacted by lower volumes, EBIT margin solid ; 5 year plan targets 100 to 160 bps EBIT margin improvement
​TBS targets an increase in gross profit margin of 150 to 180 bps over five years and plans to make “significant savings†to provide funding for reinvestment and to take advantage of future growth opportunities.
An increase in operating margin of between 100 to 160bps is expected over the same 5- year period to 2022.
TBS reported H1 17A sales at ZAR 16.4bn; +7% y/y (from continued operations). Sales were c.7% below ACe (c.4% lower adjusted for disc ops), but were significantly weaker than the 4m sales growth of 12% y/y. This was primarily driven by a weak performance in last two months of H1 17A with Easter falling in March last year vs. April this year. Domestic business (c.85% of group sales) revenue increased by 8% y/y (ACe: 13% y/y) while the International business revenue was flat (ACe: +2% y/y). Sales growth was mainly driven by strong pricing with overall volumes declining by 3% y/y in H1 17A.
EBIT increased 10% y/y to ZAR 2.2 bn; 3% below our estimates. EBIT margin was strong with a 35bps improvement to 13.2% (Ace: ), aided by improved pricing and efficiencies, particularly in the domestic business.
Outlook - Challenging outlook for the rest of the year with volumes declining significantly in Q2 17A. That said, TBS has been able to recover most of the cost push inflation which is positive for the groups margins.
Tiger Brands is a manufacturer of branded food products. Co. provides a range of categories spanning food, home and personal care products. Co. operates through:The Grains division, which includes maize and wheat milling, bakeries, sorghum beverages and breakfast, rice, oats and pulses, and pasta; The Consumer brands division, which provides groceries, snacks and treats, beverages, value added meat products, out of home, home, personal care and baby; The Exports and International division, which includes, among others, Tiger Brands International Langeberg & Ashton Foods, and Chocolaterie Confiserie Camerounaise; and Nigeria business, which comprises of Deli Foods and Dangote Flour Mills.
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