Libstar is a relatively new listing on the JSE and is a stock that has been causing some confusion for a little while now. It often pops up as one of the most searched stocks on various market data websites, but hardly anyone really knows what it is.
As it turns out, it’s a very interesting, not-so-little business in the food services/fast moving consumer goods sector, and it owns some of SA’s most recognised food brands. Who does not know Woolies assorted nut snacks or hot-cross buns? Denny mushrooms? Lancewood cheese and yoghurts? Pick n Pay no-name baking powder? Well, that’s Libstar … in a nutshell.
Libstar was founded in 2005 with the goal of acquiring and growing operations in the consumer packaged goods industry. The company blazed a trail of acquisitions until it listed on the JSE in 2018.
To investors it seemed a new company when it came to market, but the brands it owns are certainly well established and widely known. In 2007, when revenues were still a measly R1.2bn, Libstar acquired Montagu Foods — which is no doubt a name that rings a bell.
In the same year it acquired (and kept) Amaro Foods as well as two other brands, Noodle Master and Orley Foods (which it ended up selling in 2011). By 2008 group revenue was up to just over R2bn and it acquired Lancewood, among other brands. Fast forward 11 years and annual revenue is coming in at R9.9bn across seven different product categories: perishables, ambient groceries, snacks and confectionery, baking and baking aids, household and personal care, niche beverages and specialised food packaging.
When breaking revenue down, 44% of total revenue comes from dealer-owned brands or DOBs.
These are goods that Libstar produces for other brands, including Shoprite, Woolworths, Clicks, Spar, Fruit & Veg City and many more. Around 31% of total revenue originates from brands that Libstar owns — including Denny, Goldcrest, Lancewood and more. Libstar also produces for Unilever, Tiger Brands, Nestlé, KFC and Spur, to name a few.
Looking at the latest financials, readers will see that Libstar is not immune to the adverse market conditions. Revenue in the past six months has decreased in the household and personal care category (the division reporting a loss of R2.6m against a small profit last year), snacks and confectionery, specialised food packaging and niche beverages. As a group though, life is good. Revenue from the ambient groceries segment doubled from R64.5m to R129.3m, while perishables and baking and baking aids grew revenue enough to more than offset the declines in other segments. Overall revenue was up 4.6% with operating profit up 18.2% to come in at R270m for the six months ended June 2019.
Like all companies operating in this sector, it’s not all smooth sailing. Looking at the history of Libstar’s acquisitions and disposals, it would seem that the company is not shy to exit a business that is not doing well, or perhaps management feels that someone else is willing to buy at a premium to their valuation. In 2008 for example, Libstar sold off part of a business called The Blenders — but kept the portion that makes the Woolworths teas. It kept what it saw as the quality, and sold the rest. This repeats itself. In 2009 it bought Simply Cereal, which it finally sold to Tiger Brands. It bought La Femme and sold it to Premier Foods, and bought Cotton King, which was incorporated into Ambassador Foods, which it still owns.
The strategy is to grow existing brands, expand production capacity and acquire relevant businesses that complement the current product mix. In the process of executing this strategy over the past 14 years, Libstar has ended up with a host of high-quality products that are mostly defensively positioned in the overall economy. In other words, they produce products that people will probably keep buying, regardless of the overall economic conditions.
Frankly, it seems, there are good reasons for Libstar to keep popping up on the top-searched lists after all, and IM wonders just how appetising profits might be when the local economy finds traction again.
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