Rainbow reported strong growth in headline earnings per share in the six months to December 31, 2024 and its management plan to invest in new poultry infrastructure over the next few years..
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Rainbow Chicken’s share price surged more than 5% on Friday after it reported a sharp increase in headline earnings a share (HEPS) for the six months to end-December as it started to benefit from its turnaround plans.
HEPS increased 1 348.8% to 35.64 cents, but, as Smalltalkdaily Research chief investment officer Anthony Clark said, the HEPS is not comparable as Rainbow was part of RCL Foods a year ago, it was still dealing with effects of Avian Flu and RCL had ensured that Rainbow was debt free when it listed on the JSE in June.
Rainbow’s share price fell through the day and closed 1.39% lower at R3.54 on Friday evening.
Revenue increased by 8.9% to R7.9 billion. Earnings before interest, taxes, depreciation, amortisation (EBITDA) and impairments were up 119% to R581.1 million.
“An improved diverse channel and product mix significantly contributed to Rainbow’s strong market position. Additionally, the company has experienced robust demand for further-processed value products in the past six months,” the group directors said.
Rainbow’s management said the financial performance was driven by operational improvements, improved agricultural performance, efficiencies and a focus on cost management, together with lower commodity pricing compared with the comparative period.
There were also lower costs related to energy, load shedding, and Avian Influenza. Rainbow's trading brands include Rainbow, Simply Chicken, and Farmer Brown.
Clark, commenting on the results, said he did not expect the second half earnings growth to be as strong as the first half, but, on the other hand input costs, notably maize, was likely to remain relatively low and the group might be able to push through a R1 per kilogram price increase to cover rising inflationary input costs.
Rainbow would also likely benefit from the recently introduced and more production efficient Indian River breed of chicken, and demand from its value-added products was expected to remain good, said Clark.
On Rainbow’s shares which are tightly held between three major shareholders, Clark said he anticipated more upside for the price, although share liquidity was tight.
Rainbows directors said that in the six month period, animal feed sales volumes increased 6%, driven by both internal and external channels, overall revenue only increased by 2.4% as a result of lower sales prices due to a reduction in commodity input costs.
A focus on operational efficiencies and cost control through the full supply chain had a positive impact, resulting in an EBITDA margin of 5.8%. Clark said this margin was low for a food producer.
“The positive momentum of Rainbow's turnaround strategy and improved profitability continued in the first half. Revenue growth was largely attributable to an improved sales channel mix, focus on product mix management and higher volumes,” its directors said in the results.
The interim dividend was passed, although at listing it only committed to paying a dividend in 2026.
The directors said they would continue to work on their strategy of becoming a market-leading, low-cost chicken producer in South Africa and available free cash flows are being invested to grow the infrastructure platform.
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