ING
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.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.