Libstar is a diversified food company, which operates in four major sales channels, having recently released results which reflect the downturn of Covid-19, and the subsequent impact of the lockdown on its businesses operations.
Revenue was up 1.9% to R4.7 billion. The resilience of the business model is not only that of the private label portfolio, but the core brands, with perishables at 47% of revenue, groceries 32%, baking and baking aids at 7%, and Household and personal care at 7% of revenue.
Normalised EBITDA was 5.4% lower at R456 million. Gross margins rose 0.2% to 24.4% and EBITDA margins fell 0.8% to 9.7%.
Normalised HEPS fell 17.7% to 24.2 cents due to Covid-19 related costs, weak demand, and a continuation of investment in the business operations. A 25 cents dividend was declared.
The damaging effects was seen in its Food Services divisions, with its reliance on the hospitality industry, which was shutdown, resulting in a decline of 63.2% in revenue the second quarter of 2020. This was a significant reversal from that of the first quarter, where the downturn in revenue was only -3.6%, under difficult trading conditions.
· In contrast to this, was the robust results in the retail and wholesale division, with growth in revenue of 14.2% in the second half vs that of 7.30% in the first half of 2020. Strong sales growth in stay at home demand, to retailers such as Woolworths, a key customer of the group, supplying perishables, groceries, snacks, confectionary, baking as well as baking aids.
Libstar's product innovation saw 88 new lines rolled out in the past six months, with the groups product profile standing at 9000. This diversification should stand them in good stead , when the economy begins to stabilise.
Despite the economic downturn a sum of 3% of revenue was re-invested, reflecting the continuation of the ongoing investment philosophy. The financial position remains strong with gearing at 1.3x vs 1.4x in the comparable six months to June 2019, whilst cash flow conversion improved from 62% to 64%.
The Food Services division, should slowly claw its way back, with the reopening of the hospitality industry, underpinned by a strong customer base of the likes of Famous Brands, KFC, and MacDonald’s, whilst exports should benefit with the SA ports now operative.
Competitive advantages include low exposure to volatile commodity prices, unlike that of some of its major peers, strong product innovation and successful rollouts, as well as a growing market share.
Headwinds include pressure on consumer spend, growing unemployment, and supply chain disruptions.
Group CEO, Andries van Rensburg stated ‘’that recent high levels of spending by consumers might not continue into the last quarter of the year’. He also spoke about the importance of cash preservation, which at the interim was R957 million, compared to that of R610 million in the previous interim period of 2019.
Libstar is one of those quality small cap shares, with a market cap of R 4.4 billion, to put on the radar screen, and buy into weakness as economic prospects stabilise.