Libstar: Ingredients for recovery?

Small-cap food producer Libstar’s share has been on a downward spiral since its ill-fated IPO in May 2018 at R12.50 a share.

An early profit warning slammed investor confidence and subsequent lacklustre results resulted in the stock sliding as low as 300c post the release of the 2024 financial year to end-December.

For the past three years, Libstar has been a tale of two halves. Interim results since 2023 have shown an earnings recovery trend as the restructuring and rationalisation of what was a sprawling network of food businesses led to hopes that Libstar was turning the corner.

However, that was short-lived as poor second halves dashed investors’ hopes.

So it was not totally surprising when, in March 2025, the company issued a statement that it was assessing further potential strategies to deliver a meaningful value unlock for stakeholders to arrest the decline.

The market initially paid that statement little heed … until September 2025, when Libstar issued a formal cautionary stating it had received nonbinding indicative expressions of interest in the company.

The stock rallied to 450c, then trended sideways for months as investors waited.

By October the chances of a deal at Libstar seemed at best 50/50, given the value gap between potential buyers and the expectations of institutional shareholders.

Indeed, Libstar withdrew its cautionary on March 3. So where to now for this R2.7bn business?

Despite the mergers & acquisitions uncertainty, management did not rest on its laurels. CEO Charl de Villiers continued the strategic review to rationalise operations, cut costs, simplify structures and sell off problematic assets such as Denny Mushrooms and businesses in the health and personal care division.

For the first time in years, the recent financial 2025 results carried through the positive trend seen from interim results. Libstar, seemingly, has returned to a level of growth. The real question is, can it continue?

Revenue increased 8.2% to R12.3bn, with a modest 0.4% increase in gross margin leading to operating profits rising 11% to R726.2m. With a focus on working capital leading to group debt levels declining, the 14% saving in finance costs aided in normalised growth, with headline earnings up 21.7% to 70.6c a share. A 28c a share dividend was paid (up 87%). This is surely a sign of management’s confidence in Libstar’s immediate prospects — especially if the hiked payout is coupled to a 5% share buyback mandate (R140m) being announced.

It’s not only the usual coterie of small-cap pundits that have taken note of developments at Libstar

Operationally, Libstar had a fair 2025. In the ambient groceries division, which contributed 51% of the group’s revenue, sales were up 7.4% with a 50 basis point (bp) improvement in gross margin. But profit was ahead only 3.2% as good demand for wet condiments was offset by lower margins in the snacking category. The unit comprises Cape Herb & Spice, Montagu Foods and Rialto, all of which have major channels into Woolworths and export markets. Key growth was in industrial and contract manufacturing, which rose 14.9% and remains a key focus for Libstar’s growth alongside private-label markets.

The perishables division — which covers dairy business Lancewood, value-added meats business Finlar and convenience meals business Millennium Foods — reported a 9.2% rise in sales and a 210bp rise in gross margin. This helped profits up 12.5% as an improvement in pricing drove divisional earnings. Dairy grew 10%, with market share gains in cheese and yoghurt.

By rebuffing seemingly undervalued bids for Libstar and refusing to set the scene for a piecemeal breakup, De Villiers and his team have backed themselves to continue the restructuring plans and maintain operational reforms.

De Villiers believes Libstar has turned a corner and might have some game-changing opportunities ahead. He points to the simplification of the product portfolio, moving into adjacent categories, exiting low-margin brands and investing in efficiency gains.

He reckons this could lead to overall margin and earnings improvement, though he warns that this could take 18 to 24 months.

De Villiers also cautions that financial 2026 will again be a tale of two distinct halves.

He points out that the rationalisation of the wet condiments business will lead to revenue disruption of around R260m in the first half as Libstar exits the Mrs Ball’s chutney manufacturing business. Further downtime is being pencilled in for the integration of Dickon Hall Foods and Montagu Foods, which comes with a capital expenditure cost of R65m as four sites are consolidated into one. In the longer term, De Villiers says this will lead to significant business simplification and cost savings.

It’s not only the usual coterie of small-cap pundits that have taken note of developments at Libstar. The FM notes that heavyweight asset manager Allan Gray recently upped its Libstar stake by 6.6% to 14.2%.

The year ahead is a period of regrouping for Libstar. However, the mixed business performance tone for 2026 may hold back wider interest in Libstar until confirmation of improving earnings is seen.

Despite Libstar’s two-day investors event in late-March, the FM prefers to await earnings progress before baking the stock into a portfolio.