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Pioneer Foods Group (PFG) will be the stock in focus: (Price at time of writing: R164.91 as 23 November 2016)
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Background and overview of Pioneer Foods Group (PFG)
Pioneer Foods is the second largest listed Fast moving Consumer Goods (FMCG) company in South Africa, producing and distributing a range of branded food and beverage products. The Group operates mainly in South Africa, providing wholesale, retail and informal trade customers with products of a consistently high standard. Pioneer Foods exports to more than 60 countries across the globe. The growing international business represents 21% of operating profit. The Group operates a number of world-class production facilities producing a range of products that includes some of the most recognisable and best loved brand names in South Africa, including the following power brands: Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko and White Star. For more information visit www.pioneerfoods.co.za
A couple of years ago Pioneer was the dog of the market after the competition commission of South Africa fined them for bread price fixing. Since then its been a slow long road to recovery for this company and it's shares.
A couple of years ago Pioneer was the dog of the market after the competition commission of South Africa fined them for bread price fixing. Since then its been a slow long road to recovery for this company and it's shares.
Scroll over or click on the funnel chart to get more details of PFGs latest financial results
Financial review:
Zeder (in which PSG group owns a major stake), owns a major stake in PFG. The benefit of this is the fact that PSG can via Zeder, influence what happens at PFG. PSG has track record of unlocking value for shareholders. So the hope is that they can do the same for PFG shareholders via their influence over ZED and ZED's influence over PFG. As can be seen from the funnel chart above PFG earned pretty strong net profit margins with it sitting at 8.2%. Very healthy margins considering the industry they are in. PFG has worked on cutting operational costs over the last few years and it seems like this is bearing fruit.
The graphic below shows the contribution of some of PFG's operating divisions
As can be seen from the pie charts above, PFG earns the majority of its revenues and profits from its essential foods division (which is SASKO, Speko and White Star brands), with it bringing in over 60% of revenue and around 55% in pre tax profits. Groceries division showed pretty similar contributions for both revenue and pre tax profits. The margins on their international operations (which includes international brands and joint ventures) are more profitable than their local operations. This is evident by the fact that their international division only makes up 14.8% of their revenue, but makes up almost 21.2% of their pre tax profits. Perhaps they should focus more on this division in order to boost margins for the group as a whole.
Diluted headline earnings per share from continuing operations amounted to R8.39 a share. Putting PFG on a PE ratio of around 19.2. Which is not to demanding for food producer, as there will always be a demand for the products they produce or sell. However margins will never be astronomically high. Current net profit margin is sitting at around 8.2%. PFG's cash generated per share is in a very similar range to that of earnings per share, coming in at around R11.49 a share, and cash of R421million on their balance sheet (or cash per share of R1.81 a share). Total dividend for the year amounted to a gross dividend of R3.65 a share, placing PFG on a dividend yield of 2.23%. While not earth shattering it does represent a dividend cover of 2.
Diluted headline earnings per share from continuing operations amounted to R8.39 a share. Putting PFG on a PE ratio of around 19.2. Which is not to demanding for food producer, as there will always be a demand for the products they produce or sell. However margins will never be astronomically high. Current net profit margin is sitting at around 8.2%. PFG's cash generated per share is in a very similar range to that of earnings per share, coming in at around R11.49 a share, and cash of R421million on their balance sheet (or cash per share of R1.81 a share). Total dividend for the year amounted to a gross dividend of R3.65 a share, placing PFG on a dividend yield of 2.23%. While not earth shattering it does represent a dividend cover of 2.
A few financial ratios to mull over for PFG (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 0.73 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.96 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 1 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 12.49%
- Return on Equity (ROE): 21.58%
- Net Profit Margin: 8.2%
- Dividend Yield: 2.23%
Valuation
Based on PFGs financial results, the markets they operate in and the economic environment they find themselves in, we value PFG at between R163.59 and R164 a share. We therefore feel that PFG is currently very close to its full value. Investors should look to buy or top up on their holdings at prices close to or below R160 a share.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
