DURBAN - Tiger Brands yesterday wiped off nearly R3billion of its market cap after the group tumbled to its lowest levels in eight years on problems with its grains portfolio, a legal dispute with a former distributor in Nigeria, and foreign exchange liquidity issues in other export markets.
The decline came as the packaged goods company warned shareholders in a trading guidance that its earnings would fall 36 percent for the six months to the end of March.
The group said its earnings per share (Eps) from total operations would also plummet at least 36percent lower than the 864cents reported last year.
The group declined more than 8percent in early trade on the JSE before a slight recovery to close 5.58percent lower at R188.
Mergence Investment Managers analyst Lulama Qongqo said the stock fell on the weak update that was released earlier than expected.
“The profit warning came as a negative surprise to the market. Tiger Brands has a portfolio of high quality brands and products, so it was also surprising to see the strong negative reaction by consumers to a 4percent price increase,” Qongqo said.
The group admitted that it had a challenging first quarter, with revenue from continuing operations falling to R8.4bn driven by selling price inflation of 4percent, but offset by an overall volume decline of 4percent.
Qongqo said the guidance represented the continuation of difficult trade for the group, and the inability to recoup cost increases left it most likely print a disappointing full-year profit number.
“Tiger Brands has been reporting worse performance through the years ever since venturing out into Nigeria, despite an expensive strategic review that has not born fruit and leadership changes. The market has lost confidence in the company,” Qongqo said.
The group has faced difficult operational challenges in Nigeria as the export division was significantly impacted by a legal dispute with a former distributor, resulting in virtually no sales in the country. Deli Foods in Nigeria was closed last October.
Tiger Brands last month announced a new chief executive, Noel Doyle, who replaced Lawrence MacDougall. Doyle is expected to sort out the 2018 fall-out from the listeriosis outbreak, which was linked to its value-added meat products business.
The company is facing a class action lawsuit after 200 people died as a result of the outbreak.
“The parties are continuing with pre-trial preparation, while subpoenas have been issued for the disclosure of information by third parties, which is pertinent to the outbreak. Some of the third parties have declined to disclose the information in their possession,” the group said.
It said the High Court would hear various applications in May to either enforce or set aside the subpoenas.
Jordan Weir, a trader at Citadel, said the share plunge was a direct result of headwinds the group was facing. “The difficulties were felt mainly by the grains business, more specifically the bakery, pasta and rice businesses coming under supply and pricing pressures. In addition, exports to Nigeria have been hindered by a legal dispute which has ultimately ceased any movement of Tiger Brands products to that country. Finally, the impending listeriosis class action lawsuit against the company also continues to remain in the back of shareholders’ minds,” Weir said.