It’s not every day that a listed JSE company puts a “for sale” sign on its front door, but that’s what mid-cap food producer Libstar did when it released its year-end 2025 results in March.
The market barely batted an eyelid, but the following month IM issued a special-situation buy on Libstar at 319c. Since then the stock has rallied to 456c.
Libstar is best known for such brands as Lancewood dairy products, Denny Mushrooms, Goldcrest and a range of ambient and perishable foods you can find at Checkers and Woolworths.
Listed in May 2018 at R12.50, Libstar has had a chequered history of results showing lacklustre performance. The past three interim results have reflected better performance, though full-year results have yet to follow suit.
Over the past two years, management has restructured and simplified the business structure. Operations have been consolidated and costs trimmed into two distinct product categories — ambient and perishable. Noncore assets have been exited, though problem children Denny Mushrooms and Finlar Fine Foods remain temperamental.
This corporate engineering had been lost on the market, which remained jaundiced by indifferent results and a deflated share price. Thus, the March “make us an offer” tone added some much-needed flavour to the stock, and the interim results and cautionary update released in mid-September sparked the 43% rally.
The interim results to June showed solid earnings with revenue from continuing operations ahead 6.7% to almost R6bn, profit before tax at R131m (up 21%) and normalised headline earnings per share up 15.4% to 23.2c. Both ambient and perishables had revenue growth of 6%-7.6%, though profit rose 10.6% for ambient vs a modest 4% for perishables. Ambient accounted for 67% of group profits.
The key for Libstar, and thus its ability to obtain a better sale price, is performance in the important second half, a period that has underperformed in recent years. IM understands the Q3 trading performance has been indifferent, so it all hinges on the final quarter into the festive period.
With the stock up 50% from its low, IM is aware that several suitors have expressed interest to Libstar’s corporate advisers, Rand Merchant Bank
Sustained and consistent earnings growth in Libstar may be 18 months away. With the stock up 50% from its low, IM is aware that several suitors have expressed interest to Libstar’s corporate adviser, Rand Merchant Bank.
At 456c, IM suggests that a buyout of Libstar is not a slam-dunk proposition. The extended weak share price and the pricing ambitions of long-suffering institutional shareholders may not mesh with major shareholder demands. Pragmatism may be needed on both sides.
Any offer would need to be juicy to prise shares out of the combined 60% holdings of private equity company Actis — which, interestingly, recently upped its stake to 41% — the Public Investment Corp (10%) and one other large institutional shareholder.
Much of the restructuring work at Libstar has been done and consolidating the assets has made dismembering the company more challenging. IM is aware that some large shareholders may demand an ambitious price to secure their shares, but believes a figure of between 550c and 600c is sensible.
The million-dollar question is, will this be enough to tempt long-suffering shareholders to exit, or would they prefer to hang on for an eventual recovery? A cessation of the cautionary would cause Libstar to tumble. That is the double-edged sword for shareholders as any buyer for Libstar would also need to offer a justifiable price to swoop in and delist the counter to make a return.
IM gives the chances of a deal to delist Libstar as 50-50. With a 43% gain since the review six months ago, IM is more cautious. Much of the easy money has already been made.
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