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Barbican Asset Management

Taking Stock – Natfoods interim results surpass inflation growth

Introduction THE reporting season has witnessed another fine set of results from National Foods Ltd, with the first interim performance surpassing the

official inflation figures.

Falling under the consumption group of our Barbican Equity Model (BEM), National Foods Ltd was founded and listed on the local bourse in 1970. It is a specialist in the production of household foods and edible oils, together with specialised animal feeds.

In fulfilling its mandate of feeding the nation, the company boasts of numerous divisions which include the maize milling division, flour, salt and rice, oil, malt, stockfeeds and the packaging divisions.

Stock market performance

The counter continues to be among the best performers on the stock market. With a share price average of $300 since January, the counter’s all-time high of $1700 just serves to show the level of confidence the market has on the counter which continues to be among the most sort after on the local bourse.

Financial performance

The company recorded exceptional first six months results, which are stronger than even our bullish expectations. This sterling performance saw its turnover increasing by 247% to $37 billion. Its operating income went up by a whooping 893% from slightly above $1 billion last year to $11,7 billion this year.

The company achieved a 992% growth in its attributable earnings that stand at $8 billion against a paltry $729 million the same time last year. As a result of this, its EPS surged up by 985 percentage points to $122,44 compared to $11,28 in June.

It is interesting to note that the company posted a positive inflation-adjusted profit of $429,7 million, which is a marked improvement from last year’s $1,3 billion loss.

Despite a 12 points weakening in its operating margin, the company went on to achieve a 14,77-point upsurge in its net margin, which is currently at 21,7%. This serves as evidence of the level of operational efficiency the company possesses.

The company is forging ahead with its objective of creating value for its shareholders by efficiently utilising the resources at its disposal. In this respect it managed to increase its return on equity from only 7,9% last year to the current 25,7%. This was a result of a marked improvement in asset utilisation which saw its return on investment growing up to 17% from last year’s 4,4%.

There was a significant improvement in both the company’s balance sheet and its cash-flow position. It achieved a positive cash balance of $2,6 billion this year while the same time last year it had a negative balance of $555 million. This is explained by the fact that it managed to attain positive cash-flows from both investing and financing activities. At the same time the balance sheet growth of 185% sets the total asset base at $47 billion and this is by any standards a performance worth talking about.

Salient features

Well-established brands – the company’s products are marketed under well-established brand names, which include Gloria for its flour, Red Seal and Gold Seal for its mealie-meal, beans, salt, rice and cooking oil while its stockfeeds are sold under the “NF” banner. These brands are too popular in most homes and it is very rare to see a household which does not have any one of them.

Up-to-date technology – the company consistently upgrades its plant and machinery to fit the changing environment in the food processing sector. In essence the company recognises the role technology plays in its business operations.

Dedicated management – the most strategic resource Natfoods possesses is its management. This energetic and dynamic team of dedicated ladies and gentlemen puts Natfoods on the go even when the business environment continues to be unfavourabe.

Their professionalism is instrumental in the company’s ability to retain key staff in the company in these times when most firms have recorded high figures of labour turnover.

Environmental policy -Natfood is geared towards meeting both existing and future environmental requirements and this is a sign of how the company seeks to address all its stakeholders’ concerns.


Since most of its products are basic necessities falling within the price control band, during the period under review market forces had no influence in the pricing structure. The company’s packaging division whose products were not controlled contributed positively to the group’s earnings.

The group continues to suffer from shortages of inputs as the locally available ones are failing to suffice. For the greater part of the period, the group’s plants were operating below capacity as procurement of inputs became too difficult. Toll milling contracts from food aid organisations like the World Food Programme came as a supporting package to Natfoods’ milling division.


As expected the reversal of price controls was a welcome development to the group’s viability. With the group now able to competitively price its products and their sudden emergency in shop shelves, the second half is likely to be predictably impressive. Looking into the future, the current excess capacity is of strategic importance once the local operating environment gets better.


Natfoods is trading at a historic P/E ratio of 9,8.

Basing on the group’s EPS growth of 985%, we expect its future earnings to be around $1 700 per share and we also forecast a future P/E of 1,2x.


Basing on the above valuations and facts we can classify Natfoods as a growth stock, which still possess an upward potential. This, coupled with the run away in the benchmark industrial index, makes us recommend a “buy” to Natfoods at the current market price.

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