The nation’s largest chicken company.

Things are bouncing back at the margin. Still deeply depressed.

“Normalised” margin, through the cycle, is closer to 6%, which gives an indication of the opportunity.

Net margin “could” roughly double.

ASP (average selling price) trend commentary is pretty encouraging.

That’s the opportunity. Equally clear that the negotiating power is pretty darn limited, more or less entirely in the hands of Woolworths and Coles.

Now, management said repeatedly, in response to broker Q’s on the call, that there a timing issue, to cost recovery, and that’s all it is. Timing. Flows in negotiation, movements in working capital, chicken life cycles, all that complexity. But cost recovery is very possible.

So, what does that mean. Well, it suggests management expect to restore margin. I wouldn’t hope for margin expansion above cyclical average, it seems that their power fades to zero at that horizon.

But margin recovery alone will do a lot to help the share price, and those valuation metrics are deeply depressed.

Is that enough for a trade? Well, it’s not for the faint of heart. Cashflow generation remains a real issue, net of operating leases (which are enormous for this company). Cashflows are what keep the balance sheet whole, and keep the dividends flowing, and there is a big question mark here, for ING.

In a higher risk, higher return seeking portfolio, a small bet is fine.

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