Ashly DhaniBusiness Writer
Innscor Africa’s margins will likely remain under pressure from a combination of increased cost of doing business and the group opting to cushion the consumer from a 100 percent pass-on of these costs, a research firm has said.
Stockbroking and equities research firm IH Securities says the Value Added Tax (VAT) status of most basic commodities was changed at the start of 2024 from being zero-rated to exempt.
It said the change had the effect of increasing the costs of production of many of the group’s key lines such as bread, milk, maize meal, salt and stockfeeds among others with the input VAT incurred in the production of these items no longer ranking for deduction in the respective VAT returns.
“In this regard, we believe that the EBITDA margin will soften from 11,3 percent to 11 percent in FY24 before gradually increasing to a steady state of 12,5 percent,” IH said in its monthly snapshot for July 2024.
IH also said it forecast revenue for Innscor to grow 9 percent to US$876 million in FY24 driven by enhanced production capacities and route-to-market initiatives.
It said key focus will be on moderating cost lines as well as seamlessly incorporating new investments into operations, going into improving efficiencies.
The Innscor Group sunk US$32 million into capital expenditure for the 6 months to December 2023, further to the US$125 million that was spent in the two preceding financial years.
“These investments will allow the group further scope to generate revenue as well as further improve manufacturing processes and efficiencies,” IH said.
In its report IH said Innscor currently has a target price of US$0,95, suggesting a potential upside of 106 percent at current levels.
IH noted that group net interest costs in 1H24 decreased 55 percent to US$4,44 million owing to restructuring of borrowings whilst equity accounted earnings grew 233 percent boosting the bottom line by 12 percent to US$33,42 million.
According to IH, Innscor’s volume performance for the quarter was underpinned by a firm recovery in the mill-bake value chain, complemented by strong volume growth in the stockfeed and protein businesses, as well as the beverage and light-manufacturing segment.
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