adminwas commercialised at the onset of the devastating drought of the 1990s and was listed in 1997.
This is a counter with interests in Lyons, transport division called NFB Logistics and also Kutal Investments which it owns 100 percent and Dairibord Malawi in which it has a 60 percent stake.
By all matrices the quoted milk processor is not a disappointment considering it’s trading at a forward price to earnings ratios of 13.8x and a forward enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) of 7.1x which is a favourable feat against the regional average of 21x and 13.6x EV/Ebitda.
The share price for the holdings group, however, is showing signs of stress due to recent developments in the market such as the problems at Cairns Holdings which resulted in it failing to pay Dairibord for its 40 percent stake in ME Charhons.
Cairns has only paid Dairibord US$200 000 for the stake, which was sold for US$1 million.
Dairibord’s intention to acquire the Reserve Bank of Zimbabwe’s 65 percent stake in Cairns Holdings can therefore be viewed as a tit-for-tat move.
However, the move by Dairibord to buy into Cairns, which is beset by a myriad of challenges which require a significant capital outlay, has raised eyebrows as the milk processor has its own fair share of challenges.
These include the closure of its manufacturing operations in Bulawayo and Mutare coupled with the downsizing of processing factories from 10 to eight and challenges that Dairibord Malawi which includes usurious interest rates which are exceeding 41 percent per annum, crippling power shortages, a depreciating Malawian kwacha and more than 38 percent inflation as to date compared to 9 percent yearly inflation in January 2012.
The gross margin performance for Dairibord is also signifying a decreasing rate performance with a gross margin of 32 percent following dollarisation and closing the 2012 financial period at 32,4 percent.
The Ebitda margin opened 2009 at 10,7 percent and was averaging 13,1 percent for 2012.
The revenues for the group grew much faster than the attributable net income with a low revenue base of US$43 million delivering a profit after tax of US$3,2 million following dollarisation and the 2012 period registered almost US$107 million turnover releasing a bottom line of US$7 million.
It seems the udders are getting leaner and more scarce as the heifer population is still at a low base while the demand for milk in Zimbabwe is at about 8 million litres per month versus the actual production of around 4,5 million litres per month.
This has seen the raw milk prices per litre reaching 60 cents which is way above the Sadc average of 43 cents.
This gives Dairibord an unassailable comparative advantage over its competitors who happen to be small and fragmented.
In 1990, it was the only milk processor in the country but the number has grown to about 13 with notable competitors including Dendairy, Alpha and Omega, Kefalos and Gushungo Dairy which is owned by the First Family.
The upside potential for the agro-processing firm is, however, under threat from imports mainly from South Africa that continue to crowd out the capacity of the concern to recover earlier than projected.
The more than 25 percent premium on raw milk prices in Zimbabwe creates a dumping off impact notably from regional milk products as they can trade at well below the cost base of Zimbabwe.
The solution lies in increasing the udder that is providing the milk as the current annual raw milk production of 54 million litres per annum is a pale shadow of the peak levels of 256 million litres in 1991.
Christopher Takunda Mugaga is the Head of Research for Econometer Global Capital, a regional finance and economics research firm. He can be contacted on: [email protected] or +263 772 340 353 or +263 776 266 062.
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