Enhanced production efficiencies are expected to buoy the performance of diversified industrial conglomerate Innscor Africa Limited during the remainder of its current financial year and going forward, according to analysts’ projections.
The Victoria Falls Stock Exchange (VFEX) listed industrial giant has embarked on a massive capital investment initiative to boost production efficiencies to enhance output and consolidate its market share.
During the half year to December 31, 2023, the group sunk US$32 million into capital expenditure, further to the US$125 million that was spent in the two preceding financial years.
“These investments will allow the group further scope to generate revenue as well as further improve manufacturing processes and efficiencies,” said research firm IH Securities.
Revenue is projected to grow by 9 percent to US$876 million for the full financial year 2024, driven by enhanced production capacities and route-to-market initiatives.
It is further anticipated revenue will continue on a growth trajectory to reach US$1 billion in 2027 according to projections.
The group is also expected to “remain healthy” backed by agile working capital management and a resilient informal sector.
However, there are also challenges emanating from the El-Nino-induced drought, which will affect agriculture production. This is expected to have a knock-on effect on consumer liquidity in the remaining half of Innscor’s financial year.
“This will likely have a downside of slower volume growth outside of the staples offering in 2H24,” said IH Securities.
“Margins will likely remain under pressure from a combination of the increased cost of doing business and the group opting to cushion the consumer from a 100 percent pass-on of these costs.
“In this regard, we believe that the EBITDA margin will post a marginal decrease to 11 percent before gradually increasing to a steady state of 12,5 percent,” said the research firm.
The group anticipates maintaining its key focus in the second half of the financial year on moderating cost lines as well as seamlessly incorporating new investments into operations, going into improving efficiencies.
Meanwhile, revenue for the half year to December 31, 2023 jumped 20 percent to US$480,41 million on the back of a cocktail of measures to drive growth, including improvements in capacity utilization.
However, expenditures grew at a faster rate resulting in earnings before interests, tax, depreciation and amortisation (EBITDA) margin slowing down from 14,23 percent to 10,56 percent. While the environment remained challenging due to inflationary pressures, Innscor maintained a solid volume performance across segments. The Mill-Bake segment saw a recovery in volumes, with bakery volumes jumping 23 percent on account of improved wheat pricing and route-to-market strategies.
National Foods registered a 3,4 percent volume growth driven by a recovery in flour volumes (5 percent) and continued performance of the stockfeed business (14 percent) whilst the Snacks business operated at capacity for the period, with a 31 percent uplift in volumes.
In terms of performance on the bourse, the counter is projected to more than double to 94 US cents with IH giving it a buy recommendation.
Source: Herald
