SECURITIES firm, IH Securities, sees consumer staple and durable goods manufacturer, Innscor Africa Limited’s revenue rising 9% to US$876 million in its current financial year propelled by enhanced production capacities.
In its trading update released in May, Innscor said its business efforts continued to be directed toward ensuring new investments achieved targeted returns.
The manufacturer also noted that overall free cash generation remained a vital performance metric for the group, in support of future financing and investing activities.
In an analysis of Innscor’s prospects for the year, IH Securities said Innscor currently had a target price of US$0,95, suggesting a potential upside of 106% at current levels.
The increase would mean that Innscor would need to raise its share price and add US$280,98 million to its market capitalisation.
“As per the last trading update, performance, on a cumulative nine-month basis, continued to track ahead of the same period last year, enhanced by the significant investment undertaken to extend manufacturing capacities and capabilities across all core manufacturing operations over the past three years,” IH Securities said.
“Volume performance was underpinned by a firm recovery in the mill-bake value chain, complemented by strong volume growth in the stockfeed and protein businesses, as well as the beverage and light-manufacturing segment.”
IH Securities added: “We forecast revenue for Innscor will grow 9% to US$876 million in FY24 driven by enhanced production capacities and route-to-market initiatives. Key focus will be on moderating cost lines as well as seamlessly incorporating new investments into operations, going into improving efficiencies.”
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IH Securities said the value-added tax (VAT) status of most basic commodities was changed at the start of 2024 from being zero-rated to exempt.
“The change had the effect of increasing the costs of production of many of the group’s key lines such as bread, milk, maize meal, salt and stockfeeds, among others, with the input VAT incurred in the production of these items no longer ranking for deduction in the respective VAT returns,” IH Securities added.
“Net interest costs in 1H24 decreased 55% to US$4,44 million owing to restructuring of borrowings while equity accounted earnings grew 233% boosting the bottom line by 12% to US$33,42 million. The Innscor group sunk US$32 million into capital expenditure for the six months to December 2023, further to the US$125 million that has been spent in the two preceding financial years.”
These investments, according to IH Securities, would allow the group further scope to generate revenue as well as further improve manufacturing processes and efficiencies.
“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% pass-on of these costs. In this regard, we believe that the EBITDA [earnings before interest, taxes, depreciation and amortisation] margin will soften from 11,3% to 11% in FY24 before gradually increasing to a steady state of 12,5%,” IH Securities said.
In its trading update, Innscor said the bold policy measures taken by authorities to support growth had caused the group to rebase its underlying business models.
However, key to Innscor’s earnings will be consumer spending, which has largely remained depressed owing to an increase in US dollar pricing and the scarcity of the ZiG currency.
“In July, most households continue to employ consumption-based coping measures such as skipping meals, reducing meal portions, or prioritising the feeding of children and the ill, which are usually characteristic of the peak of the lean season,” the food security initiative the Famine Early Warning Systems Network (Fews Net) said, in its latest food security report.
“Some households in parts of the country that received grain from the government are relying on this food assistance as a main source of food. The government has reported plans to resume its school feeding programme in rural and urban areas to help address food shortages, malnutrition and school dropouts because of the drought.”
Fews Net added: “The government has also announced a US$1,6 billion 2024/25 agricultural season crop input assistance plan to be financed by the government (40%) and the private sector (60%) to support engagement in the 2024/25 agricultural season and take advantage of the forecast average to above-average rainfall.”
