Inghams Group posts strong maiden result
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 16 February 2017, 7:37 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Despite a challenging New Zealand market due to market oversupply and a weak
wholesale market in Australia, ING's 1H17 result beat expectations.
Solid earnings
growth (EBITDA +9.1% on pcp) reflected strong demand for poultry driven by consumer
preference for healthier (leaner) white meat, poultry being the cheapest and most
versatile protein and Project Accelerate benefits which saw margins rise (EBITDA
margin was 7.8% vs 7.4% the pcp).
ING is on its way to transitioning from a family-run
business to a modern, efficient FMCG business. Proforma operating cashflow was up on
the pcp (+10.8% on pcp) and the dividend beat our forecast at 2.6cps ff (Morgans was
2.0cps). Capex peaked in the 1H17 and net debt is expected to fall in the 2H17.
ING is well positioned to deliver solid earnings growth
1H17 EBITDA represented 50% of ING’s full year guidance. However the prospectus
said that FY17 EBITDA would be weighted 45-48% in the 1H17 and 52-55% in the 2H17
due to the timing of Project Accelerate benefits. We therefore believe that full year
guidance is conservative, with risk to the upside.
Our FY17 NPAT forecast remains
unchanged however in line with the 1H17 trends, we have lowered our New Zealand
forecast and increased our Australian forecast.
The slight revisions to our FY18 and
FY19 NPAT forecasts are due to higher depreciation expense. Over the forecast period,
we forecast double digit NPAT growth driven by solid demand for poultry and the
expected margin improvement associated with Project Accelerate.
Investment view
ING is one of our key picks in the Ag/Food sector. Our positive view is based on ING
being the market leader of a domestic protein growth story in an industry where there
are clear barriers to entry, its scale gives it bargaining power with customers, Project
Accelerate should underpin solid EPS growth and it has a well-respected management
team.
ING offers investors both yield and growth. Trading on an FY17F PE of 12.8x and
an annualised dividend yield of 5.3% fully franked, we believe that ING is undervalued.
The next catalyst for the stock is ASX300 and possibly ASX200 index inclusion with the
March review.
Key risks include the market power of the major retailers, loss of a major
contract, inability to pass on feed costs, disease, increased competition, changes to
import regulation, supply chain disruption and not delivering on Project Accelerate.
We maintain our Add recommendation for ING. Morgans clients login to view our share price target.
More information
Morgans clients can login to view further analysis in our full report, which includes our share price target for Inghams (ING). Alternatively, please contact your nearest Morgans office for access.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.