ZIMBABWE Stock Exchange (ZSE)-listed Dairibord announced a 10% overall sales volume growth that was underpinned by stellar performances in the milk and foods strategic business units (SBUs).
Liquid milks saw a 20% volume growth on the back of augmented raw milk supply while a 47% surge in the foods division was anchored on exceptional performance from yoghurts and frozen foods.
Resultantly, the group’s topline was 18% higher compared to the prior year at US$126,8 million. Despite an increase in expenses emanating from regulatory tax changes, energy costs and exchange losses, the group achieved an overall profit position of US$3,8 million.
Cash sales ease working capital constraints
Total assets increased marginally to US$51,3 million, largely as a result of non-current assets held for sale. Operating cashflows improved significantly due to improved profitability on a cash basis. A restructuring of the group’s debt position resulted in an ease in interest burden and an improvement in its cashflows from financing activities.
No final dividend was declared.
Bottom line to lag top line growth
The group’s overall sales volumes will likely benefit from increasing milk supply, as well as resilient fast-moving consumer goods demand in 2025. However, strong competition and structural tax-driven pressures in the absence of capital expenditure funding will likely result in relatively weaker bottom-line growth in the financial year 2025 (FY25) and beyond.
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Valuation: FY25 price target revised downwards
Despite an expected growth in the financial year 2025 profits, we revise our 12-month price target downwards to US6,30c mainly because of diminishing long-term growth potential as well as tight ZiG liquidity on the ZSE. Global peers were used to generate forward looking multiples, and these were adjusted for differences in country risk. A risk-adjusted forward-looking sector PER multiple of 7x and a forward-looking EV/EBITDA exit multiple of 3x were key to our valuation. We maintain our HOLD recommendation on Dairibord.
Investment thesis
We remain cognisant of the group’s positioning to the cash market coupled with a rebound in the agricultural season to cushion the group’s overall sales volumes from a milk supply and demand perspective in the financial year 2025, notwithstanding the special surtax on sugar and restrictions on route-to-market for manufacturers.
Further to that, we anticipate a reprieve to the group's bottom line as a result of the subsided interest burden. However, we also highlight the introduced withholding tax to non-value-added tax compliant traders to also affect Dairibord’s USD revenue collections given that players in the informal sector are nearer to cash and have been significant drivers of the company’s US dollar sales.
Further, the business requires critical capital expenditure in order to maintain market share against well capitalised peers such as Innscor and Delta in the medium to long-term.
- This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
