Investors like new-look Rainbow

A new-look Rainbow Chicken is taking shape amid enthusiasm from investors who have boosted its share price by a third since November. Driving the change is Rainbow’s R1-bn acquisition of Foodcorp and a R3,9-bn rights issue, setting the scene for more positive developments.

Foodcorp adds turnover of R7bn and diversification away from SA’s beleaguered broiler chicken sector through brands such as Yum Yum peanut butter, Ouma Rusks, Pieman’s pies, Sunbake bread, Bobtail and Dogmor pet foods, Nola, and Glenryck.

Foodcorp has the makings of the start by Remgro, Rainbow’s parent, to grow it into a far larger food-manufacturing player, says Stanlib industrial research head, Theo Botha. Remgro has a 73,4% stake in Rainbow.

Part of his reasoning revolves around Remgro’s 25,8% stake in Unilever SA, worth R7-bn. “Unilever has the right to repurchase Remgro’s stake,” says Botha. Before acquiring Foodcorp, he says, a repurchase by Unilever would have left Remgro with no food manufacturing interests.

Growing a food manufacturing business in SA is no easy task in a market where brands and market share are fiercely defended. Scope for acquisitions is also limited.

The future for an ambitious Remgro-driven Rainbow could lie north of SA’s borders. Rainbow CEO Miles Dally recently alluded to targeting expansion in “greater sub-Saharan Africa”.

Remgro has helped pave the way into Africa through Pembani Remgro Infrastructure Fund’s partnership with US private equity firm Carlyle to invest US$210-m into Export Trading Group (ETG). Based in Tanzania, ETG has 22 processing plants and 600 warehouses in 30 African countries. In the year to March 2012 it reported revenue of $884-m.

Rainbow’s share-price rebound has been paralleled by a rise in rival Astral’s share price since November. Initially up 24%, Astral’s rise has faded to an 11% gain, perhaps on the realisation that the broiler industry’s woes are not over…..

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