Tiger Brands revenue to grow 8.4% in the listeriosis wake, Arqaam report

SOUTH AFRICA – Tiger Brands’ road to recovery after facing the recent Listeria crisis may see the food producer grow its revenue and earnings by 8.4% and steadily thereafter in the next three years.

Business Live reports that, Finance and investment firm, Arqaam, projects a strong growth for Tiger Brands, but off a low base, in the 2019 financial year with its share expected to creep up to R303 within 12 months.

According to Arqaam, its revenue is likely to increase from US$ 2.06 billion to US$2.53 in 2021, with dividends projected to grow by about 34% by 2021.

It said headline earnings, which slumped 26% in 2018, could increase 16% in 2019 and 4.2% in 2020.

“We pencil a high single-digit revenue [growth] of 8.4% in 2019, following a contraction in 2018.

We still expect revenue to grow by 8.4% in 2019 mostly due to Enterprise restart, despite continued selling price deflation, pressure on retailer volumes, retailers pushing back on food producer’s pricing to maintain margins, and a constrained consumer environment,” it said.

However, the finance and investment firm quoted unfavourable market conditions persistence with wheat and maize price inflation expected to increase because of declining global inventories, low rainfall and higher costs of production in SA.

Real disposable income growth looked set to remain unlikely in 2019 due to limited employment growth, inflation of 4.7%, and a likely rate hike of 25 basis points in the first quarter, it said. 

Speaking after the release of Tiger Brands’ full-year results in November, CEO Lawrence MacDougall said the listeria crisis had consumed a significant amount of the firm’s resources resulting into a decline in its performance.

Tiger Brands also grappled with rand volatility, drought in the Western Cape and increased competition resulting to a 9% revenue drop in the 2018 financial year. 

Arqaam however, remained sceptical that Tiger Brands was unlikely to recover the costs from the consumers.  

“A rising cost inflation environment is unlikely to result in strong earnings growth in the short-to-medium term as we do not believe that rising costs can be easily passed on to the consumer,” it said.

Tiger Brands lost R1.4bn in revenue in financial 2018 due to listeriosis and still faces a lawsuit for listeriosis-related deaths.

Of late South Africa has been seen to experience a period of sustained low economic growth, high inflation and limited real disposable income growth limiting consumers’ expenditure.

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