Libstar offers food for thought at AGM

Consumer brands conglomerate Libstar, owner of the  Lancewood dairy products brands, will be looking at value-unlocking opportunities in the short term.

This was prompted by questions at Libstar’s AGM on Thursday morning, which coincided with the group’s share price trundling to a record low of 362c on the JSE.

CEO Charl de Villiers said Libstar would be undergoing a strategic review next month to explore all options to unlock value for shareholders.

Earlier shareholders had raised the possibility of Libstar — one of the smaller players on the JSE’s food sector with a market value of R2.7bn — being lined up as a takeover target if the prevailing tough trading conditions triggered a consolidation phase.

Food producers face several strong headwinds including rising food inflation, increased input costs, higher interests rates, load-shedding and rapidly falling consumer spending.

De Villiers disclosed that the load-shedding rate would cost Libstar about R40m over six months. “There is an accelerated investigation into solar power. This is at the proposal stage for our baking business in Cape Town, and will then be rolled out aggressively to other centres.”

De Villiers said there were initiatives under way to bolster Libstar’s ROIC (return on invested capital).

“More than 80% of Libstar’s intrinsic valuation resides in six businesses, and the R1.8bn invested in these businesses will yield the necessary returns to prove ROIC. One example would be our hard cheese upgrade in Lancewood, which supports our brand- leading position in that natural cheese segment.”

He said Libstar would also look to increase its exposure to the export market both through a more concerted effort in its divisions and also through the (recent) acquisition of Cape Foods.

De Villiers intimated that lower returns were mostly the function of the cluster of smaller businesses that made up the other 20% of Libstar. “The top six businesses have delivered superior returns compared with the remaining 20% of the portfolio. To address that 20% segment that is impacting on the broader results, we are simplifying and clustering the smaller divisions to eliminate duplicated costs and to build scale.”

He said Libstar was also critically assessing divestment and other options in relation to underperforming business units like Denny (mushrooms) and HPC (household cleaning products).

Smalltalkdaily Research analyst and Libstar shareholder Anthony Clark was keen to know whether the markedly weaker share price meant executives would consider meaningful share buybacks.

De Villiers confirmed share buybacks would be one of the options under discussion at the upcoming strategic review.

Libstar chair Wendy Luhabe maintained that the current share price was not a reflection of the intrinsic value of the group. But she noted Libstar had also been affected a rerating of the valuation of companies in the FMCG (fast moving consumer goods) sector from (earnings) multiples of 8.6 times to almost half that multiple at present.

Luhabe said significant capital investments were made in Libstar’s top six divisions since 2018, but these projects had not yet generated the expected returns due to the Covid-19 impasse and weak economic conditions.

“We remain confident that these capital investments were made in the right areas of the business and will significantly enhance our competitive advantage, our manufacturing capability and our capacity to enable us to capitalise on opportunities.”

hasenfussm@fm.co.za