Quantum Foods earnings leap on lower input costs
Quantum Foods’s share price soared more than 17% after it announced strong full-year financial results.
The company, which produces and sells poultry products, said on Thursday group revenue jumped 4% to R4bn in the year to end-September.
The share price, which has gained 25.85% since January, rallied 10.83% to R3.48.
The South African operations grew revenue 2.5%, while the rest of the African operations were up 27.4%, helped by the full-year inclusion of the Galovos egg business in Mozambique, as well as increased egg volumes sold from the Mega Eggs farm in Zambia and the Masindi egg farm in Uganda.
Quantum attributed the overall positive performance to increased summer rain, which led to record harvests and a significant dip in feed prices.
Gryphon Asset Management equity analyst Casparus Treurnicht said that the record maize crop lowered input costs.
Quantum said the crop harvested in SA should cause a large carryover of maize stock into the next season. Even with average summer rainfall in maize-producing areas, the group should experience relatively low maize prices in 2018.
“Globally, maize and soyabean stocks remain sufficient. These factors should ensure that the main input costs into Quantum Foods’s business remain reasonable,” it said.
Group headline earnings per share increased to 49c, from 28.2c in 2016.
The South African operations grew profits by R65m to R172m, at a margin of 4.5%, up from 2.8% in 2016. Quantum Foods said the outbreak of highly pathogenic avian influenza in September had a “devastating effect” on it and led to the culling of thousands of chickens and a consequent reduction in the supply of poultry products in the country.
Two of its Western Cape commercial layer farms had been affected, causing the loss of more than 570,000 chickens.
To mitigate the effect on the production capacity of the egg business, a dormant farm in Gauteng would be brought back into production in the first quarter of 2018, it said.
Additional capacity had also been created at previously dormant layer houses on a Western Cape farm. This facility will also be brought back into production in the first half of 2018.
“The group continues to work in partnership with the South African Poultry Association and government to ensure the sustainability of the industry, either through vaccination or through compensation for loss of chickens,” Quantum said.
Treurnicht said that the management had done well to act immediately and cull while restarting idle capacity. Although the outbreak of avian influenza had a limited effect on egg prices, the outbreak was expected to compound the already constrained supply of eggs in the next six to 12 months, resulting in higher egg prices, Quantum said.
In Mozambique, extreme weather conditions resulted in 28% of the layer flock being lost in the first quarter of 2017.
“The business was subsequently restructured and downscaled, and capital was deployed to upgrade the chicken houses to ensure that flocks are better protected from harsh conditions going forward,” Quantum said.
The Ugandan business started to recover in the second part of the year due to lower raw material prices and an improved focus on efficiency.
The Zambian business was well managed and remained profitable throughout the year.
Quantum warned that if the rand weakened against the dollar, maize and soyabean prices would rise, causing increased input costs.
The board approved capital expenditure R23.9m, up from R12.8m in 2016. The board also said that it would continue with the repurchase of shares.