The Tiger Brands share price gave a rip-roaring performance last week — largely thanks to the appointment of respected turnaround expert Tjaart Kruger as CEO with effect from November.
But that may only be half the story. There are other key factors that suggest Tiger — South Africa’s biggest food producer with such brands as Jungle Oats, Black Cat peanut butter, Energade, Koo, Tastic, Albany and All Gold — can finally claw back margin and market share.
Kruger’s unexpected appointment — unceremoniously replacing former fixer Noel Doyle — might have overshadowed Tiger’s trading statement for the full year to end-September, which appears to belie initial market fears.
At the time of the FM’s cover story on Tiger in late June, forecasts for the group’s full-year earnings mostly pencilled in a drop of about 20% in headline earnings.
Now the group estimates that headline earnings from total operations for the year to end-September may differ by between -5% and +2% (or between -85c a share and +34c a share) from the R17.02 a share notched up in 2022. In other words, a low end of R16.17 a share and top end of R17.36.
So, it will be of considerable relief to Tiger shareholders that Kruger — who has a reputation as a no-nonsense operator and is a former Tiger executive — is not stepping into the hot seat at an absolute low point.
That, in turn, feeds into another important consideration — Kruger has been appointed as CEO for just 26 months. Tiger stated the appointment would “accelerate the execution of the company’s strategy and value creation for shareholders”. It’s quite possible Tiger can extend Kruger’s tenure, but the group has made it clear that it is already planning for succession.
Two major areas of concern for Tiger, of late, have been the milling-baking and rice divisions — which have not been able to capitalise on long-held dominance by Albany and Tastic, the market-leading brands in the two sectors.
Most market watchers feel the rice segment’s problems might be a one-off hitch that should already show signs of improvement in second-half trading.
The bread segment looks trickier, with intense competition gnawing into margins. There is considerable irony that consumer brands conglomerate Premier Group — where Kruger had a successful tenure as CEO between 2011 and 2021 — has been an intense competitor with its Blue Ribbon bread brand.
It might well be that Value Capital Partners (VCP) — which has a stake of about 4% in Tiger — is making its presence felt at board level. The prime movers at VCP were the top executives at Brait in 2011 when Kruger was hauled in to turn Premier around.
VCP CEO Sam Sithole says the business needed a change. “Noel was thanked for the tremendous work he had done — not only as CEO in recent years but also for over 20 years with the group. He is a great guy. But looking at where Tiger is now and the competition in the market, the business needs a transformation.”
Though Sithole says Kruger’s appointment was a full Tiger board decision, VCP has pulled the strings at board level at both Sun International and Altron with good effect in recent years.
These are areas where Tjaart did exceptionally well during his tenure at Premier. It also helps that he won’t need 10 months to learn about the business.
— Sam Sithole
Sithole tells the FM: “Sometimes for a transformation a fresh pair of eyes, where there are no holy cows, is quite important. If you look at Tiger since 2017, where has it lost most of its profitability? It’s been in milling and baking.”
Sithole reckons the milling and baking segment battle will be won in the general trade and informal markets. “These are areas where Tjaart did exceptionally well during his tenure at Premier. It also helps that he won’t need 10 months to learn about the business.”
Sithole notes that when Kruger stepped in at Premier, the group lacked strong brands. “The difference at Tiger is that it still has No 1 brands in South Africa. The group now needs to go back to basics and make sure it gets back the margins.”
In June Doyle stressed Tiger wanted to return to being the most admired company in its sector. “We are not looking to return to the old swagger and the old arrogance when Tiger was really top of the pile. But we want to be known as the group that innovates best, is the most efficient, is quickest to adopt new technology … the first to latch on to new consumer trends. But a Tiger Brands with a humility that’s come from some of its setbacks.”
Kruger is well aware of Tiger’s strong legacy. “The nice thing about Tiger is that [it] still has the best brands … now you need to fix the cost structures.”
He suspects that Tiger might have a structural flaw in centralising too many decision-making functions. “It hamstrings the operations … they can’t make any decisions.”
Shaakir Salie, an analyst at Aeon Investment Managers, says market sentiment towards Tiger’s management had been negative for some time, “judging from investor meetings and analysts’ comments”.
Most recently, the issues in Tiger’s rice division — where promotional activity led to a big fall in operating income — was judged as management failure, with the “blame oversight” ultimately falling on Doyle.
“It remains to be seen whether the change in leadership leads to better company performance … or if concerns surrounding management will continue to weigh on shareholder returns.”
The share price suggests Tiger has the benefit of the doubt — for now.
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.