Tiger Brands pounces on it's skeptics with a rebound in results

South Africa's largest food producer Tiger Brands reported a healthier set of numbers for the full year ending 30th September 2016, giving investors a first glance at its business with the absence of a key asset Dangote Flour, a Nigerian flour mill the company had purchased four years ago that garnered sharp criticism from stockholders of what they believed to be management's overextended price tag paid in its acquisition as well as generating countless problems in adapting operations to differing business culture in countries other than its own.

A shake up in the top brass which saw CEO Peter Matlare replaced by Lawrence MacDougall has sped up the process of cutting away at deep losses, there's still much work to do in securing the company's long term path of sustainable earnings growth that's being threatened by new entrants.

Companies such as Rhodes Food Group who have emerged with ambitious plans to capture the market dominance of Tiger Brand's much beloved Koo brand, the preferred choice amongst consumers in the canned food market, has offered stiff competition to the company in a sector where it previously hadn't found the need to work on due to it's unadulterated support.        

South Africa's Tiger Brands FY profit up after Nigeria sale https://t.co/CJaQwxRpKB #Africa #business #news

— Business in Africa (@Afrinnovator) November 23, 2016

Consumers in South Africa are feeling the pinch more now than ever before with price of basic necessities making up a heavily weighted part of their decision in purchasing an essential product . The company may have successfully disguised it's premium priced goods by explaining them away with the severity of drought experience in South Africa, it shouldn't be expected to last longer once prices stabilise again whilst competitors consistently beat margins lower in an effort to capture market share.

Added to the dilemma that it's finding harder trade conditions in other African countries it's setup operations in, the established operations of the company will be under strain in feeding support to these areas of the business in the hopes of making a footprint on the continent however judging by previous endeavours shareholders can't be blamed for a degree of skepticism.

But when assessing the outlook of the global economy and the risk off nature markets have taken over the last year, it wouldn't be completely unrealistic to take a defensive view and in saying, Tiger Brands falls neatly into this category which can't be ignored.

From a valuation perspective, it's P/E ratio is hovering close to that of Pioneer Foods at around 17 but is slightly cheaper than Rhodes which sits at 21.