Investors shrug off Quantum Foods’ profit warning
The market’s reaction was muted, implying that the fall had been expected
Quantum Foods, the Western Cape-based poultry- and animal-feeds business, said on Thursday that its half-year earnings would fall at least 42%.
The group said headline earnings per share (HEPS) in the six months to end-March would be lower than 48c, compared to the 82.5c reported in the prior year.
But the sharp decline in profits was no surprise, said independent analyst Anthony Clark, who expects HEPS for the full year to September 2019 of between 70c and 80c. This implies a decline of up to 57% from the year before.
At midday on Thursday, Quantum’s shares were trading 1.7% lower at R3.40.
Clark said the weaker interim performance was attributable to Quantum’s eggs business, which was contending with an oversupplied market and lower prices. A year before, it had profited handsomely from shortages and higher prices.
The next 12 to 18 months will be tough for Quantum’s egg business, although that unit only makes up about a third of its total operations, Clark said.
At its current level, Quantum’s stock “looks incredibly cheap”, said Clark. The company is lowly geared, has good long-term prospects, and healthy dividends are expected.
More share buybacks are also expected, he said. Quantum hasalready repurchased about 18% of its stock.
In February, the group warned that falling egg prices and an increase in raw material prices for feed will hit its earnings in the four months to January.
SA’s largest egg producer sold 847-million eggs and egg products in the 2018 financial year. It sells eggs under the Nulaid, Safe Eggs, Quantum and retailers’ own brands.