Rainbow Chicken finally lists on the JSE after tough few years

Rainbow’s 890.3 million shares were untraded at R4 each yesterday, and will begin trading from July 1 this year. File photo

Rainbow’s 890.3 million shares were untraded at R4 each yesterday, and will begin trading from July 1 this year. File photo

Published Jun 27, 2024


ONE of South Africa’s best-known chicken producers, Rainbow Chicken, listed on the JSE Main Board yesterday through an unbundling from its parent RCL Foods.

The listing, the second in two days for the bourse, followed RCL announcing its decision to list Rainbow in March. Rainbow’s 890.3 million shares were untraded at R4 each yesterday, and will begin trading from July 1 this year.

The JSE has been struggling to attract new listings recently after only three companies listed last year. Although it predicted possibly up to 10 new listings this year, so far Rainbow is only the second after Cilo Cybin listed on the AltX board yesterday.

Smalltalkdaily Research market analyst Anthony Clark said the listing of South Africa’s second-largest poultry company had been “the talk of the henhouse for years”.

The South African poultry industry has been through a very challenging couple of years due to an environment of failing municipalities, power cuts issues, rising imports, higher feed prices, and outbreaks of avian influenza, lower sales volumes and an inability to pass on price increases, among other challenges.

Clark said based on the current landscape for the poultry sector, he would rather wait until the second half of 2024 to decide to invest in Rainbow, “if domestic poultry prices and input costs start to act in a manner to benefit the sector”.

“There is no JSE listing pot of gold at the end of this Rainbow, but the company is certainly not a crock. Rainbow is a stock I’d want to own at a point in time, just not currently,” he said in a note yesterday.

He said under the direction of CEO Marthinus Stander, much had improved at the poultry stock. “It needed a good sort-out on the farming side. If you don’t get farming right, nothing else matters. Now Rainbow is a far spritelier bird,” said Clark.

VS Research equity analyst Vikhya Sharma predicted in a research report that after a challenging few years, high earnings were expected at Rainbow as the operating margin improved, on the back of slightly higher chicken volume growth, improved chicken-rearing performance, and lower load shedding and disease costs in the near-term.

Key risks included failure of the turnaround plan, volatility in commodity prices leading to cost pressures, load shedding costs, disease risk and collapse in consumer spending leading to downtrading to cheaper protein sources.

According to Rainbow’s pre-listing statement, for the six months to December 31, 2023, it generated an earnings before interest, tax, depreciation and amortisation (Ebitda) of R265.4 million, a growth of about 590% compared to the prior full financial year.

It reported an overall R12.99m first-half profit off revenue of R7.25 billion, with the profit a turnaround from the R286.02m loss for the 2023 year.

RCL has over the past three years moved to improve operational resilience at Rainbow through targeted interventions across farming and manufacturing processes.

Rainbow’s unbundling will be implemented through a distribution of 890 296 405 ordinary shares, in the ratio of one Rainbow Chicken share for every one RCL Foods share held – with shares set to start trading from 1 July.

Rainbow Chicken was originally founded in 1960 as a small family-owned business. Today, it is a fully integrated broiler producer and functions at all stages of chicken production, from farm to fork. Its fully integrated business model incorporates all stages of chicken production.

It controls and operates 165 farms, 1 288 houses, eight hatcheries, three primary processing plants, two further processing plants dedicated to added-value chicken products, six animal feed mills, and it holds a 50% shareholding in a joint venture (Matzonox), which operates two waste-to-value plants.

Its primary retail brands include Rainbow, Rainbow Simply Chicken, and Farmer Brown, while food service brands are FlavourBurst and Rainbow Ready2Go, all of which cater to a wide array of consumer needs and preferences.

It is also South Africa’s second-largest feed company through its brands Epol and Driehoek Feeds.

Rainbow CEO Marthinus Stander said: “Stepping out as a standalone entity marks a significant milestone for Rainbow, carving out a unique and competitive position in the market. We aim to re-establish and rebuild our chicken and feed businesses as best-in-class in terms of customer-centricity, delivering value via innovation and leveraging our heritage.”

JSE Capital Markets director Valdene Reddy said they were thrilled to welcome Rainbow Chicken to the JSE as an organisation seeking new growth avenues for the business, and that the company had selected the JSE as a preferred venue to unlock value.

“We’ve already seen several listings in recent years where an entity has chosen to unbundle, usually to find new direct access to equity markets and supporting firms as they expand.

“Similarly, we know that Rainbow Chicken’s decision to list as its own entity is a testament to the JSE’s ability to provide issuers with access to liquidity and capital on our exchange,” said Reddy.

Clark said there was “much to like at Rainbow”. Its product and business mix with a large focus on food service and an interesting value-added side had expansionary potential. The business was also listing with a clean balance sheet care of RCL Foods and was in better shape to stand up to market rigours.