Natfoods to maintain growth path

HARARE – National Foods Limited (Natfoods) is projected to maintain a growth trajectory in the financial year 2021 supported by its strong business which is anchored on staples.

This is despite the obtaining challenging environment, carried over from the previous financial year, worsened by Covid-19 which caused disruption to production across sectors. But the factors that weighed on businesses in the prior year are seen easing in the current year with the foreign currency exchange rate stabilising on the auction system.

Revenue is seen jumping 182 percent to $17,8 billion for the FY21 while earnings before interest, tax, depreciation and amortisation is projected to grow 113 percent to $3,66 billion. NatFoods is the country’s biggest grain processor, and its diverse product base adds to its allure.

“Despite consumer spend still being very elastic, the company is expected to post a solid performance on the back of its business model being anchored in staples, which adds a defensive layer to the business.

“The company’s margins have expanded well beyond historical and industry norms, leading to strong bottom-line earnings and a highly attractive valuation on a multiple basis versus comparable businesses.

“However, we do believe that there will be a correction and realignment in margins going forward, and thus expect some significant softening to begin in FY21,” said brokerage firm IH Securities in an earnings review update.

Overall volumes are expected to rebound.

In FY20, overall volumes for the period under review declined by 25,3 percent to 456 000 tonnes, as consumer disposable income continued to be weighed down by the devaluation of the local currency and the pandemic.

Volumes for the flour division declined by 35 percent, as significant subsidies that were present in the prior year were progressively removed. Maize meal volumes fell marginally on last year’s high base as supply picked up following the local harvesting season.

Despite the declines experienced in FY20, the group is upbeat about the maize category and confident that the group currently has adequate pipelines of all key raw materials to trade sustainably in the year ahead.

Said IH: “Overall, we anticipate sales volumes across the board to start picking up again as economic activity resumes post Covid-19 lockdown.”

But NatFoods has indicated they will continue with their growth agenda especially in the cereals categories which are logical forward integration opportunities from the basic milling portfolio.

While demand in these categories remains relatively subdued, the work on broadening the offering in these segments will continue, developing the company’s repertoire for improved economic circumstances.

The group’s share price on the local bourse is projected to more than double to $183 with IH upgrading the group to a strong buy recommendation. – Herald