Libstar

  • 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.

Libstar