Zambeef Products Plc Share Analysis by Kampamba Shula

Zambeef Products Stock Analysis

Zambeef Products PLC (“Zambeef”, the “Company”, or, together with its subsidiaries the “Group”) is one of the largest integrated agri-businesses in Zambia.

The Group is principally involved in the production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, eggs, edible oils, stock feed, flour and bread. The Group also has large row cropping operations (principally maize, soya beans and wheat), with approximately 8,350 Ha of row crops under irrigation and 8,650 Ha of rain-fed/dry-land crops available for planting each year. The Group is also in the process of rolling out its West Africa expansion in Nigeria and Ghana, as well as developing a palm project in Zambia (Zambeef, 2009).

Integrated business model provides strong foundations for growth:

·         Underpins margin capture and value-add

·         Secures supply chain

·         Reduces risk and earnings volatility

Large capital investments: Mpongwe farm successfully integrated with crop production ahead of budget

Upgrade and expansion programme at Zamanita has doubled crushing capacity and will enable Zambeef to start paying meaningful dividends from 2014. Increased production and efficiencies in stock feed, dairy and milk processing divisions

Zambeef is well placed to achieve its long-term ambition to become one of the largest food producers in the region (Zambeef, 2009).

Share Price Analysis

Zambeef has been hit in the lasyt week by a scandal of importing beef into Zambia containing embalming Chemicals.The 3 month graph below shows the reaction.

The graph below shows a better picture which shows the trajectory in the early half of 2013.As can be seen from the graph below the Zambeef share price was rising for the major part of the first 2 quarters till April 2013.

ZAMBEEF Products Plc, a dual listed firm, has been rated by Panmure Gordon as top stock picks among 13 companies listed in London.

Panumure Gordon, a London-based broker has named Zambeef as among the top stock picks for 2013 while agriculture groups Asian Plantation has been cited as a potential takeover target (Daily Mail, 2013). Zambeef is dual listed on the Lusaka Stock Exchange (LuSE) and London Alternative Investment Market (AIM). “Zambeef’s strong position in agribusiness, its high degree of vertical integration and the strong fundamental growth drivers of Zambian consumer market underpin our forecasts for adjusted earnings per share to more than double between 2012 and 2015,” the statement reads.

The broker restated a “buy” rating on shares in Zambeef, the Zambian-based soy oil-to-butchers shop group, highlighting the increasing demand for meat in the fastest growing African country.

“With the International Monetary Fund forecasting a nine percent rise in economic output per capita in Zambia this year, “this income growth should ensure that strong consumer demand for Zambeef’s products continues, and in particular for key sources of protein such as beef, pork and chicken,” the broker notes (Daily Mail, 2013).

London stock exchange details

Currency	Issue Country	Shares in Issue	Market Capitalisation	Market Size
GBX	GB	247.98m	£115.31m	5,000

52 Week High	60.50	52 Week High Date	21-FEB-2013
52 Week Low	26.50	52 Week Low Date	7-AUG-2012

# Trades	Vol. Sold	Vol. Bought	PE Ratio	Earnings	Dividend	Yield
8	8,000	54,667	64.763	0.72	0.00	0.00

Financial Summary

Financial summaries

		For the year ended 30 September
Key statistics	Unit	2012	2011	2010	2009*	2008*
Statement of comprehensive income summary
Revenue	(US$ Mn)	255.1	206.8	161.9	131.7	131.7
Gross profit	(US$ Mn)	87.7	70.5	50.9	40.2	49.5
Group profit attributable to equity holders of Zambeef Products PLC	(US$ Mn)	2.9	9.3	4.2	1.9	10.3
Earnings before interest, tax, depreciation & amortisation (EBITDA)	(US$ Mn)	17.4	18.6	12.9	5.9	16.2
Statement of financial position summary
Total assets	(US$ Mn)	317	245.2	162.3	150.8	200.8
Shareholders' funds	(US$ Mn)	147.6	155.0	95.0	94.2	121.6
Total liabilities	(US$ Mn)	169.5	90.1	67.3	56.4	78.1
Profitability & return ratios
Gross profit margin	(%)	34.4	34.1	31.4	29.2	37.6
Net income margin	(%)	1.1	4.5	2.6	1.4	7.8
Return on equity	(%)	1.9	6.0	4.3	2.2	8.6
Asset turnover	(times)	1.2	0.8	1.0	1.0	0.7
Liquidity ratios
Current ratio	(times)	1.4	1.5	1.4	1.1	1.3
Interest cover (using EBITDA)	(times)	3.3	4.8	6.0	2.4	8.5
Capital structure ratios
Long term debt/equity ratio	(%)	47.7	24.2	30.3	10.1	10.9
Total debt/equity ratio	(%)	87	41.2	48.3	40.8	35.4
Shareholder ratios
Earnings per share	(cents)	1.16	5.1	2.6	1.2	7.5
Dividend per share	(cents)	-	0.8	1.0	-	2.4
Dividend cover	(times)	-	7.8	2.5	-	3.2
Dividend payout ratio	(%)	-	12.8	40.0	-	31.7
Dividend yield	(%)	-	1.0	1.3	-	1.4
Price earnings ratio	(times)	44.2	12.8	30.2	66.0	23.3
Net asset value per share	(cents)	59.5	62.5	59.9	59.4	76.6

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* Discontinued operations, namely Nanga Farms PLC
** The results for FY2012 includes the Zamanita ZRA provision of ZMK49 billion (USD9.7 million) charge to the statement of comprehensive income.

In Depth Stock Analysis

For September 2013, Panmure Gordon expects 41% growth in adjusted taxable profits to $19 million for a 28% improvement in earnings per share (EPS) to 6.89 cents (4.3p), with nine cents a share (5.6p) pencilled in for 2014. A single digit prospective price/earnings (PE) ratio seems ungenerous for a such a high growth business as it enters a period of strong free cash flow generation (Share Magazine, 2012).

ZAMBEEF: Unaudited results for the six months ended 31 March 2013

Zambeef (AIM: ZAM), the fully integrated agri-business with operations in Zambia, Nigeria and Ghana, is pleased to announce its results for the six month period ended 31 March 2013 (Zambeef Unaudited results, 2013).

Financial Highlights

Revenue              Up 20% to USD153.4m   (2012 USD127.6m)

Gross Profit        Up 24% to USD55.6m     (2012 USD44.7m**)

EBITDA Up 8% to USD16.6m        (2012 USD15.3m**)

Adjusted Pre Tax Profit Down 7% to USD8.4m+ (2012 USD9m**+)

Highlights

·         Recorded significant growth in revenue and gross profit, up 20 per cent and 24 per cent respectively; and EBITDA growth up eight per cent.

·         Gross margins increased from 35 per cent. for March 2012 (excluding the Zamanita tax provision) to 36.3 per cent. for March 2013

·         Adjusted pre-tax profit declined 7 per cent. due to increases in overhead costs, increased finance costs and higher depreciation costs due to increased capital expenditure and realised exchange losses due to the depreciation of the Zambian Kwacha against the USD

·         Strongest divisional growth seen in cropping (up 76 per cent.), edible oils (up 70 per cent.), stock feed (up 36 per cent.), and West Africa (up 30 per cent.)

·         Oil seed crushing recommenced at Zamanita

·         Increased crop yield performance at farming operations

·         Disposal of 49 per cent. of Zam Chick Limited ("Zam Chick") to Rainbow Farms Investments (Pty) Limited ("Rainbow") for USD14.25 million - effective date of completion of the transaction was 31 March 2013

Further to the announcement of 4 February 2013, Zambeef (AIM:ZAM), the fully integrated agri-business with operations in Zambia, Nigeria and Ghana, announced that all the conditions precedent to Completion of its proposed disposal of 49 per cent. of its shareholding in Zam Chick had been met, which includes inter alia, receipt of approval for the Transaction from the Competition and Consumer Protection Commission of Zambia, and the parties have agreed the effective date of the Transaction to be 31 March 2013.

Commenting on the Interim results, Chairman Dr. Jacob Mwanza, said:

"We have been very encouraged by the good growth in turnover, gross margins, gross profit and EBITDA. Adjusted pre-tax profit was lower than last year's strong comparative period, largely due to increased costs, which is being actively addressed by management. However, the successful integration at Mpongwe Farm and subsequent excellent crop production, the doubling of capacity at Zamanita, the increase in capacity of our broiler and layer operations and capacity improvements at Master Pork, all leave Zambeef in a strong position to take advantage of growing demand for food products in Zambia. As such, as we return the chicken and egg, pork, and dairy divisions to expected levels of profitability, we anticipate a stronger performance in the second half of FY 2013 and the Board expects the Company to start paying dividends from 2014 onwards."

Conclusions

Zambeef has incredible intrinsic value and this can be shown by the net asset value of the shares being significantly higher than market valuations. The capital and liquidity ratios are strong following through to the profit margins and return on equity.

In 2013 Zambeef recorded significant growth in revenue and gross profit, up 20 per cent and 24 per cent respectively; and EBITDA growth up eight per cent. This underscores the great potential that awaits investors in Zambeef.

We can anticipate a stronger performance in the second half of FY 2013 and the Board expects the Company to start paying dividends from 2014 onwards.

Zambeef : BUY

Watch the video below to hear Yusuf Koya , Executive Director at Zambeef discussing the growth in revnue by 20 percent. 

Bibliography

Daily Mail. (2013, April 18). ‘Zambeef top stock buys for 2013’. Retrieved June 25, 2013, from http://www.daily-mail.co.zm/: http://www.daily-mail.co.zm/uncategorized/4625

Share Magazine. (2012, December 13). zambeef-offers-protein-powered-profits. Retrieved June 25, 2013, from http://www.sharesmagazine.co.uk/: http://www.sharesmagazine.co.uk/articles/zambeef-offers-protein-powered-profits#.UcmABDvfBic

Zambeef. (2009, January 1). Who we are. Retrieved June 25, 2013, from zambeefplc: http://www.zambeefplc.com/who-we-are/

Zambeef Unaudited results. (2013, June 10). ZAMBEEF: Unaudited results for the six months ended 31 March 2013. Retrieved June 25, 2013, from Zambeef: http://ir.zambeefplc.com/profiles/investor/ResLibraryView.asp?ResLibraryID=63185&BzID=1988&Nav=0&LangID=1&s=0&Category=1789

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