Taking Stock - Tiger Brands to slash costs by R450m

In today's taking stock we discuss, Tiger Brands is set to slash costs by R450 million in its 2022 financial year after the recall of about 20 million canned vegetable products and the July unrest cost it R732 million pre-tax.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Shares on the Johannesburg Stock Exchange (JSE) mirrored most emerging and developed markets and closed down for the second consecutive day after a six-day winning streak. The benchmark All-Share index lost 0.69% to end at 70,376 points and the blue-chip Top 40 index ended down 0.65% at 63,871 points. Financials shed 1.79%, while the local Bank index dropped 2.01%. Absa was the worst performing Top 40 company, as it traded 3.63% down. Woolworths followed closely, shedding 3.59% on Friday.

 

EUROPEAN MARKET COMMENTARY

European markets closed lower on Friday, with investors rattled as countries impose strict measures to tackle the latest wave of Covid-19 infections. The pan-European Stoxx 600 closed down by 0.3%, having started the day on a positive note. Europe’s banking index was among the worst performers, plunging 2.3% following comments from European Central Bank President Christine Lagarde. Germany on Thursday announced more restrictions for unvaccinated people as a fourth wave sent cases to a record, before Austria announced Friday that it will re-enter a full national lockdown.

 

 

US MARKET COMMENTARY

US stocks struggled on Friday as concerns over a resurgence of Covid-19 weighed on global markets, though tech shares pushed higher. A slew of stellar earnings reports from big retailers and strong U.S. retail data helped the broad-market index fight heightened concerns about inflation and gave it a leg up when Covid worries emerged. Shares of air carriers were among the worst performers. United Airlines fell 2.7%, while Delta fell 1%. Boeing lost 5.7%. The pullback in airline and travel stocks came about a week after the Biden administration lifted pandemic travel restrictions that have barred many international visitors for nearly 20 months.

 

 

ASIAN MARKET COMMENTARY

Shares in Asia-Pacific were mixed earlier today as China kept its benchmark lending rate unchanged. Investors monitored Hong Kong-listed shares of Chinese tech firms Alibaba, Baidu and JD.com after they were among firms fined by China’s market regulator for allegedly violating anti-monopoly legislation. Alibaba shares in Hong Kong slipped 0.22% while Baidu fell 1.78%. JD.com, on the other hand, surged 2.61%. Over in South Korea, the Kospi gained 0.73% as shares of industry heavyweight Samsung Electronics soared about 5%. Australian stocks declined as the S&P/ASX 200 fell 0.43%.

 

 

CURRENCY MARKET COMMENTARY

The rand slumped to its worst ever in a year against the dollar on Friday as contagion effects of the meltdown of Turkish lira on emerging market currencies played alongside concerns of rising coronavirus cases and lockdowns in Europe. The local currency seemed to have bypassed the entire effect of Thursday's 25-basis-point rise in lending rate by the South African Reserve Bank and will continue to keep focus on global factors. At the close of the session, the rand was trading around R15.73 to the dollar, 0.54% weaker.

 

 

COMMODITIES MARKET COMMENTARY

Crude oil fell to seven-week lows this morning, extending declines after the previous session's slide, on concerns about excess supply after Japan said it was weighing releasing oil reserves and over demand from a worsening COVID-19 situation in Europe. Japanese Prime Minister Fumio Kishida signalled on Saturday he was ready to help counter soaring oil prices following a request from the United States to release oil from its emergency stockpile. Meanwhile, concerns are growing that renewed COVID-19 curbs could hit demand. Gold prices stabilised earlier today after hitting their lowest in nearly two weeks, as a retreating dollar lent some support to the metal.

LOCAL COMPANIES

Pepkor (PPH) +1.9%

Pepkor’s results for the year to end September 2021 show a huge turnaround in its fortunes during a very interesting and challenging year. While management pointed out that headline earnings increased by some 115% and that it achieved and then surpassed its ambition to restore profitability to 2019 levels, the actual figures in the balance sheet show that the recovery was much bigger than management suggests. Profit for the year recovered from a loss of R2.86 billion in 2020 to R4.88 billion in 2021, although one should take into account that the major reason for the loss in the previous year was a huge write-off of goodwill. Goodwill was reduced by a massive R4.7 billion that had to reflect in the income statement. However, the income statement also shows that Pepkor got things right. Revenue increased by 9% and cost of sales by somewhat less. CEO Leon Lourens remarks in his commentary to the results that the total gross profit margin increased by 10 basis points to 34.3%. “From a retail perspective, gross profit margins increased by 40 basis points as a result of more full-priced sales and lower markdowns. Credit sales on store accounts is still only 7% for the whole of the Pepkor group. A benefit of high cash sales is that debtor’s costs (which include bad debts on credit sales) improved significantly – declining by nearly R1 billion compared to the previous, difficult year. Finance costs also decreased, by nearly R1 billion compared to the previous year. Pepkor announced in April that the acquisition of 12 leased properties from Steinhoff International Holdings received the necessary approvals and all related conditions were fulfilled. The transfer of 11 of the 12 properties was completed during the financial year. Pepkor also received a total of R671 million from insurance companies as compensation for damages suffered in the July riots and civil unrest in KwaZulu-Natal.

 

 

Tiger Brands (TBS) -0.9%

Listed fast-moving consumer goods (FMCG) manufacturing giant Tiger Brands is set to slash costs by R450 million in its 2022 financial year after the recall of about 20 million canned vegetable products and the July unrest cost it R732 million pre-tax. On Friday the group released its annual results for the full-year ended September 2021, which showed headline earnings per share (Heps) slumping 6%. Its latest Heps came in at 1 127 cents, compared to 1 196 cents for its prior (2020) financial year. The decline in headline earnings and also operating profit came largely from the fall-out of losses suffered due to the recall of Koo and Hugo canned vegetable products together with the impacts of the unrest seen in KwaZulu-Natal and parts of Gauteng in July. Operating income (profit) from continuing operations fell around 10% to R2.2 billion. The owner of well-known food brands like Oros, Jungle Oats, Albany Bread and Purity, saw its gross margin drop to 28.5% (2020: 30.1%) and operating margin fall to 7.2% (2020: 8.3%). The group’s total revenue, excluding the effects of the product recalls and civil unrest, increased by 5% to R31.2 billion but this was underpinned by 7% price inflation and partially offset by volume decrease of 2%.

INTERNATIONAL COMPANIES

Ford and Rivian (F, RIVN) -0.9% and +4.2%, respectively

Ford Motor and Rivian no longer plan to co-develop an electric vehicle, the companies confirmed Friday. The two companies initially announced development of a joint vehicle when the automaker invested $500 million in Rivian in 2019. They later said it would be for Ford’s luxury Lincoln brand, before cancelling those plans last year. Ford, at the time, said the automakers would still seek other opportunities to collaborate with one another. Those plans also have now been scrapped, according to Ford spokesman Ian Thibodeau. He said the company retains ties with Rivian, including a 12% stake in the start-up, which at the company’s IPO last week reached a value of more than $10 billion.

 

India’s fastest start-up to hit billion-dollar status is already profitable, says founder

Indian start-up Mensa Brands has catapulted to billion-dollar unicorn status in just six months and, in a more rarefied feat, is already profitable, its founder told CNBC. The direct-to-consumer brand aggregator this week became the fastest company in India’s history to hit the coveted threshold after closing its $135 million Series B funding round at a $1 billion valuation. The financing, which was led by Falcon Edge Capital, takes total money raised in debt and equity to $300 million. “Within the first six months of operation we’re actually profitable, and we continue to intend to run this business in a profitable manner,” founder Ananth Narayanan said.

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Research Team
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