Astral has room under its wing
With Astral eyeing acquisitions, some see consolidation as offering benefits of scale for the local poultry market
Leaner trading conditions in the local poultry sector, coupled with high levels of cheap imports, could lead to Astral Foods — the JSE’s "big bird" — swooping on a smaller rival.
Astral CEO Chris Schutte says some of the smaller and medium-size poultry players have expanded "a bit" recently, and Astral will look at opportunities for acquisitions.
Earlier this year Uitenhage-based poultry group Sovereign Foods acquired the Hyline Africa (now Blue Hills) hatchery in Midrand, and merged with the Cold Storage Group (CSG), an Eastern Cape wholesaler of poultry and value-added poultry products.
Market watchers reckon one possible deal could be an Astral takeover of the struggling Daybreak Farms poultry business.
The Public Investment Corp (PIC), which invested in Daybreak in 2015, is also a key shareholder in Astral.
Market share estimates show Astral holds about 26% of the local broiler market with Daybreak accounting for about 7%. Other big players are RCL’s Rainbow with a 20% market share and Sovereign Foods with 8%. A fragmented "other" poultry category accounts for a chunky 22% of the market.
Between them Astral and Daybreak would have about 33% of the market, but any assessment by the competition authorities should factor in the volume of imported chicken.
Astral has estimated that imports account for about 31% of the local broiler market — effectively reducing its market share to 18%.
Opportune Investments CEO Chris Logan has long maintained the SA poultry sector needs "a local champion" that will have the critical mass and production efficiencies to compete with cheaper imports. He notes: "Even if you put Astral and RCL’s Rainbow chicken business together you would not have an entity that produces more birds than the current level of imports."
Logan contends that scale also enables innovation.
He says US poultry giant Tyson Foods — which produces 37-million birds a week against Astral’s 5-million — has the wherewithal to finance innovation. "Tyson is investing in alternative protein ventures, the most notable early success being Beyond Meat. This is a plant-based protein producer which has just had an IPO and already carries a valuation of $4bn, or R57bn — about seven times the market cap of Astral."