I wrote about this shunned share in August when it was trading at 555c. It hit 650c in early October after interim results were significantly better than the market expected and it emerged that well-known value fund managers had made significant investments.
Trading on a p:e of 7.1, based on the last FY2021 normalised HEPS of 80.4c, Libstar screams value in the food producer sector. IM forecasts HEPS of 86c for the year ended December 2022, taking the p:e to 6.6.
A 7% rise in earnings may seem low, but higher input and distribution costs, load-shedding and a constrained consumer suggest it is fair, especially in the context of weak updates from sector comparatives.
Interim results to June saw normalised HEPS rise 14.1% to 35.6c on 9.6% growth in revenue to R5.2bn. Libstar traditionally has a better second half and remains cautiously optimistic on growth.
The company recently held a site visit for analysts and investors to detail the depth and scope of the business.
Many readers may not be aware of the range of Libstar products, private label and branded, on the grocery and perishable shelves at Checkers, Pick n Pay and most notably Woolworths, where Libstar has a strong relationship.
Brand solutions deliver 83% of revenue, and half of that comes from private-label categories. An example is chicken schnitzels, a top three product for Woolies. About 39% of sales comes from Libstar brands such as Lancewood, Denny and Goldcrest, with 10% from principal brands such as Kiri, Tabasco and Lurpak. The other 17% of revenue comes from food service and contract manufacturing.
Libstar’s 2021 revenue of R10bn (59% from perishables and 33% from groceries) delivered operating profit of R512m.
Global supply chain bottlenecks and the inefficiency of South African ports have affected many of Libstar’s key divisions
The company’s biggest brand is Lancewood, an integrated dairy company with a leading market share in cheese and yoghurt and revenues of R3.5bn.
Dairy is growing fast domestically, with yoghurt alone a R5bn category, and Libstar plans to keep growing market share through product launches and innovation.
Moves to increase efficiency are evident in a R300m-plus capex investment over recent years which is gaining traction and generating cost savings, especially at Lancewood, where R200m was spent.
Global supply chain bottlenecks and the inefficiency of South African ports have affected many of Libstar’s key divisions.
Rialto Foods, a major importer from Europe, and Cape Herb & Spice, a R1.25bn business with significant export trade, have faced supply chain issues. As they subside, there is scope for renewed vigour.
Other change is happening at management level, where CEO and co-founder Andries van Rensburg is retiring at the end of the year and handing over to CFO Charl de Villiers.
IM expects the sale of the household and personal care business to be resurrected in 2023, and intensified focus on key divisions such as Lancewood, Millennium Foods — a manufacturer of frozen and fresh ready-prepared meals — and Finlar Foods.
Finlar operates in the meats category, has material contracts with large retailers and food service companies, and recently won sizeable export contracts to Saudi Arabia.
Libstar had a failed listing in May 2018. The market remains mostly unforgiving, which has weighed on the share price and the rating. At 570c, the stock is down 18% in the year to date.
However, the company’s rating is attractive. Private equity controls 37% of Libstar and the low valuation rating could yet foster, as IM speculates, a bid or even a management buyout if the market does not fully appreciate the improvement in operational performance and earnings.
Libstar is doing better than many other companies in its sector and its derisory rating supports our buy recommendation. IM’s target remains 750c (+32%).
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.