Is Tiger Brands finally on the right path, or will it fumble again? Get the latest on their turnaround efforts and what’s next for this iconic South African brand. More from Giulietta Talevi of Currency.
There have been plenty of missteps, but an increasingly cash-flush Tiger Brands might – finally – be on the road to better times.
It’s easy to get swept up in the optimism of a results presentation, especially when the CEO is more ebullient than usual – but it seems that Tiger Brands, under Tjaart Kruger, is indeed on a new, better path.
Tiger, which owns iconic brands such as All Gold, Koo and Albany, plans to grow product volumes by 1% to 3% in the immediate future, and then by 4% and 6% over the longer term. That doesn’t sound like much, but when you’ve been ceding ground to competitors for years, and relying on price hikes to prop up revenue, it’s a big deal.
For the year through September, for example, volumes declined by 6%, with a sharp 9% drop in the first half easing to just 2% in the second. However, thanks to a 7% increase in prices, full-year revenue edged up slightly to R37.7bn.
Kruger, who admitted in Wednesday’s presentation that “when we stood here six months ago, we were sweating quite a bit”, is adamant that the trajectory has changed. “We are back into growth; we are fixed,” he told analysts.
Umthombo Wealth portfolio manager Alexander Duys – who holds Tiger shares for clients – says that after the “mostly sombre” presentations of the past 15 years, he found it “very refreshing to witness a confident, concise and in-control CEO”.
Certainly, the market is taking a jauntier view of the company: its shares were up 3.6% on Wednesday, taking its gains since January to 30%.
Getting it right
Joking that his team “are all younger than 40, but they look about 60”, Kruger said: “The guys have done an enormous amount of work in the past year. What we’ve got right is the operating model and different businesses focusing on the right things.”
Tiger has sold some brands to simplify its portfolio, and decentralised the business to “where people sit at their factories and operations”. More asset sales are in the offing, too.
Kruger admits that in some parts of the business, “we were out of control on discounting structures”. That’s because the more volumes you push through a factory – like, say, an Albany bakery – the lower your costs. So “people tend to drive volumes by discounting too much – but I think we’ve got it right now”, he says.
Duys believes that while Tiger has done a lot of work, more is needed. But “if they continue this path, the market might just start to believe that Tiger can potentially emulate its revered past”.
Urquhart Partners meanwhile likes a “special situation”, which makes Tiger its default preference in the food sector. But, says analyst Richard Cheesman, “for long-term investors, it would be difficult to argue against AVI”.
It’s not as if Tiger has much on the macroeconomic front to help it, given South Africa’s awful unemployment stats, rising poverty and high inflation. Duys is especially worried that private label offerings – the no-name brands sold by supermarkets – are “a material threat and should be taken seriously”.
Duys believes Tiger is well positioned and that quality companies “thrive from the competition, and it seems to me that Tiger Brands wants to instil a new culture of challenging the competition, not fearing them as they have done historically”.
Premium brands, he argues, still hold significant value. “If the price points can be closer and if consumer health starts to recover, they will likely trade upwards again,” Duys says.
Potential settlement risk
Another lingering risk is the potential settlement of the listeriosis saga, which could still stall Tiger Brands’s recovery. The company has been embroiled in a class-action lawsuit stemming from a 2017/18 listeriosis outbreak linked to contaminated polony produced by a Tiger unit. The outbreak claimed more than 200 lives.
Kruger is the latest in a string of CEOs to take the helm at Tiger Brands after predecessors left following poor or mixed performances. Peter Matlare departed under the shadow of Tiger’s troubled expansion into Africa, which led to a write-down of nearly R1bn from a failed acquisition. His successor, Lawrence MacDougall, retired after four years, largely defined by the disastrous handling of the listeriosis crisis.
CFO Noel Doyle, who had previously been implicated in a bread price-fixing scandal, became CEO in 2020 but left in 2023 as Tiger Brands sought fresh leadership to address its evolving challenges.
For the past financial year, Tiger’s headline earnings were up 4%, to R18.10, while the dividend came in at R6.84 a share, a rise of 1.9%.
The company has hiked its desired return on invested capital to north of 20% from 15.3% now, and a big improvement in working capital means the group is feeling much more cash flush. This paves the way for a potential special dividend, share buybacks, or a better dividend cover ratio – despite planned capex of up to R1.5bn, including a new “super bakery” for Albany bread.
Duys reckons that if Tiger can increase volumes and expand operating margins, then there’s potential for the group to sustain double-digit earnings growth. It is at a critical juncture, and if Tiger can capitalise on its momentum, it could re-establish itself as a powerhouse in South Africa’s food sector.
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