Investment Thesis:
- Trading on undemanding multiples and below our valuation.
- Potential for an improvement in the pricing environment.
- Quality management team who has managed disruptions for the Covid-19 pandemic well.
- Quality assets and operates as Australia and New Zealand’s largest integrated poultry producer.
- Project Accelerate has proven successful in driving automation and labour productivity, which supports earnings uplift despite decrease in revenue.
- Procurement initiatives implemented with benefits in line with expectation.
- Investing to increase capacity and capability across the business in Australia and New Zealand plants.
- Capital management initiatives are possible with a strong balance sheet.
Key Risks:
- Re-negotiation of key contracts with large customers on unfavourable terms.
- Increase in feed and electricity costs, which may be pushed to customers through market price increases, reducing competitiveness.
- No news on the appointment of a new CEO creates uncertainty.
- Customer concentration risk in QSR (Quick Service Restaurants) and Supermarkets.
- Susceptible to exotic disease breakouts, impacting ING’s ability to supply poultry products.
- Significant reduction in volume and quality from parent stock supplier.
- Material interruptions to ING’s complex and interlinked supply chain.
Key Highlights:
- Group core poultry sales volumes grew +5.6%, driven by strong volume growth of +6.5% in Australia.
- Statutory EBITDA of $220.4m, and Underlying EBITDA of $222.4m, was up +2.2% and +1.7%, respectively.
- Statutory NPAT of $38.4m, up +8.8% and Underlying NPAT of $39.7m, up +5.9%
- Cash flow from operations of $186.6m, was up +4.7%. Cash conversion ratio of 83.5% reflects seasonal working capital cycle and in-line with the pcp.
- ING retained a solid balance sheet with net debt of $264.6m and leverage of 1.3x, a significant reduction from 1.7x in the pcp.
- Total capital expenditure of $24.0m was lower than the pcp, reflecting completion of hatchery projects, ongoing project disruptions caused by Covid-19 lockdowns and delays in equipment being shipped.
- The Board declared a fully franked dividend of 6.5 cps, in line with the pcp, and equates to payout ratio of 60.9% of Underlying NPAT post AASB 16 adjustments, which is at the lower end of ING’s 60 – 80% target range.
- In Australia segment, Core poultry volumes grew +6.5% to 203.4kt, despite Covid-19 lockdowns and challenging market conditions. Revenue grew +1.9% driven by core poultry revenue growth of +2.2%, which grew despite weak pricing across the Wholesale channel due to excess supply, partially offset by feed revenue, declining -2.0% as customers transition supply away in preparation for closure of the ING’s WA Feedmill. Underlying EBITDA declined -0.3% to $185.1m, reflecting a lower Intercompany royalty charge, reduced by $3.2m.
- In New Zealand segment, Core poultry volumes were flat at 33.7kt, as Covid-19 lockdowns were reintroduced. Core poultry revenue increased +3.6%, due to price increases applied across all channels to help offset higher feed costs and inflationary pressures related to supply chain disruption. Underlying EBITDA of $19.1m increased $3.3m versus the pcp, with the change to intercompany royalty charge accounting for $3.2m.
Company Description:
Inghams Group Ltd (ING) is Australia and New Zealand’s largest integrated poultry producer. The Company produces and sells chicken, turkey and stock feed that is used by the poultry, pig, dairy and equine industries.
(Source: Banyantree)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
