Zambeef shares tumble, after soy price weakness fosters profits drop


Shares in Zambeef plunged after the cropping-to-eggs group unveiled a 94% slump in half-year profits and warned that its full-year results would be "materially below" forecasts, hurt by a double whammy of economic and soy market setbacks.

The Zambia-based group saw its London-listed shares tumble 23% at 14.0p, their weakest finish in nine months.

The decline followed the release of what the group termed "disappointing" results for the October-to-March half, showing profits of $533,000 – down from $8.96m a year before, and a drop blamed on a "challenging economic environment" in Zambia, combined with lower prices of soybeans.

And while the group forecast some improvement in its performance, it warned that "given a touch economic backdrop leading to pricing pressures, some cost inflation… and the impact of a material drop in agri-commodity prices", its full-year results "will be materially below previous market expectations".

Rising rates

Zambia's economic setback handed the company a series of setbacks, with measures such as interest rate rises implemented by the country's central bank to curb inflation having a "negative impact on consumer disposable income" besides lifting payments on the company's debt.

The group's interest rate on debt denominated in Zambian kwacha peaked at 28.1% in March, offsetting the benefit to the group's interest payout from a lower debt burden.

 The group said it was "expecting our kwacha rates to drop below 20%, again, which will materially reduce interest charges".

Bean troubles

Meanwhile, a drop in Zambian soybean prices from around $535 a tonne last year to $360 a tonne this time "has had a significant impact", in part thanks to curtailing takings on the more than 40,000 tonnes of the oilseed the group produced during the half year.

Zambeef's cropping division reported a 60% plunge to $1.98m in earnings before interest, tax, depreciation and amortisation (ebitda).

The weaker soy price also fuelled a 32% drop in the group's animal feed division, Novatek, as falls in feed prices prompted the sale of inventory, created with higher raw material costs, at low margins.

"In contrast, in the previous season the stock feed industry was operating in a different environment, and Novatek was in the fortunate position of bringing forward soymeal [inventory] at under $400 a tonne, when the new season pricing was around $600 a tonne."

Farm sale plans

Zambeef added that it was looking at"opportunities to dispose of assets in areas where it does not consider itself to be best in class" in an effort to raise cash to cut borrowings further and invest in core areas.

It confirmed that it was "considering the disposal of some of its other farmland assets" to back improvement at Mpongwe, its flagship farm, which achieves high row crop yields, and which some observers believe could be worth well $100m, over as reported last week.

"Options being considered include the sale of Chiawa and or Sinazongwe farms in the southern Zambezi Valley," the group said.

The two farms, of which Savills explored the sale of some two years ago, are now being marketed by Knight Frank with a price tag of $50m.

'Always going to be difficult'

In the City, Ed Hugo at broker VSA Capital downplayed surprise at the results, saying that it was "always going to be difficult for an ag operator in this environment".

He flagged that despite the fall in the shares, they remain well above the 8.0p at which the shares stood before the announcement in August of a $65m investment from Commonwealth Development Corporation, which sent the stock price soaring more than 50% in a day.


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