02 Oct 2014 Rhodes Food Group: set to go places with today’s JSE listing
Rhodes Food Group (RFG) joined the main board of the JSE this morning – and is now in the illustrious company of the likes of Tiger Brands, AVI and Pioneer Foods. By all reports, RFG’s prospects have excited the market.
RFG’s private placement was greeted in style by local and foreign investors, coming in “multiple times oversubscribed”, says RFG CE Bruce Henderson (right).
But some analysts have concerns about RFG’s pricing, viewing it as rich in an equity market that’s on the back foot.
Pitched at R12/share, the placement puts RFG on a historical p:e of about 18.5 based on adjusted, annualised headline EPS (HEPS) in the nine months to June.
The price was too high for Sanlam Investment Management (SIM). “Rhodes is a classic example of a focused, smaller, nimble company but it is just too expensive for us,” says SIM fund manager Andrew Kingston.
Also on the sidelines is Old Mutual Small Companies Fund manager Warren Jarvis. “Rhodes’ pricing is in Tiger Brands’ valuation league,” he says. But he concedes: “[RFG] has demonstrated it can command this type of rating.”
Indeed it has. In its three financial years to September 2013, RFG set a blistering pace, growing sales at 17%/year and earnings before interest, tax, depreciation and amortisation (Ebitda) at 49%/year. Adjusted, annualised nine-month results to June 2014 point to Ebitda growth of about 50%.
Putting RFG’s growth into perspective, Tiger Brands managed a mere 12.5% total increase in HEPS over the comparable four year period. A more dynamic AVI lifted HEPS 115% in the four years.
It is RFG’s growth potential and position as number one or strong number two player in many niche sectors that attracted Richard Middleton, manager of Investec Emerging Fund. “It is a great company,” says Middleton. “It offers something different from Tiger Brands and AVI.”
Though Middleton expects RFG’s growth to power ahead in its first year of listing and beyond.
Henderson believes RFG’s placement was priced realistically, given its growth potential. While he declines to put numbers on the potential, he leaves no doubt he sees big things ahead for RFG, a company in which management has a strong commitment through a combined stake of some 23%.
Management’s stake was acquired in a buyout of RFG from the Ivor Ferreira Trust in 2012 with the backing of private equity firms Capitalworks and Morgan Stanley Alternative Investment Partners. Through the placement the private equity firms cut their combined stake in RFG from 71% to just under 40%. New equity capital of R600m was also raised.
With a history dating back to its founding by Cecil Rhodes as Rhodes Fruit Farms in 1902, RFG has a formidable product line-up which includes jams and vegetables (Rhodes and Hazeldene brands), pies and sausage rolls (Magpie brand) and cheese (Portobello brand).
A strong position in the retail private label sector has also been built, not least as Woolworths’ exclusive supplier of ready-made meals and pies. “Our relationship with Woolworths dates back to the mid-1980s,” says Henderson. “It is very important to us.”…..
Financial Mail: Read the full article
Rhodes Food Group to list on JSE on October 2, 2014
This is a press statement issued by the company….
Groot Drakenstein – Western Cape based food producer, Rhodes Food Group Holdings, plans to list on the main board of the JSE in the Food Products sector on Thursday, 2 October.
Rhodes Food Group is a leader in convenience meal solutions, catering for needs across consumer income groups.
The pre-listing statement issued today provides details of Rhodes Food Group’s intention to raise R600 million through the issue of up to 57 million new shares and the concurrent sale of 42.75 million shares offered pro rata by the existing shareholders, Capitalworks (71%) and management (29%).
The offer price range has been set at R10.50 to R13.50 per share, valuing the offering at approximately R1.1 billion based on the mid-point of the offer range. Rhodes Food Group’s free float is expected to be approximately 40%.
The net proceeds of the listing will be used to invest in capacity expansion, reduce debt and provide greater balance sheet flexibility. The settlement of funding with part of the proceeds of the listing and the renegotiation of loan rates are expected to result in annual finance cost savings of R76 million.
Chief executive officer, Bruce Henderson, said: “We have invested R158 million over the past three years in maintaining and upgrading our eight production facilities in South Africa and Swaziland with new technology and processes. A further investment of R229 million is planned for 2014 and 2015.”
Henderson said the listing would also provide a currency to accelerate Rhodes Food Group’s strategic growth plan and create financial capacity for selective acquisitions.
The Rhodes Food Group management team has a track record of acquiring underperforming assets, improving operations and either revitalising existing brands or extending the Rhodes brand into new categories. This includes the acquisitions of Magpie Foods (2004), Sunpie (2006), Giants Canning (2007), Del Monte South Africa (2010) and Bull Brand (2013).
A culture of continuous innovation across packaging, production processes and new product development has ensured that Rhodes Food Group has maintained long-term relationships with local and international customers.
Rhodes Food Group has a growing portfolio of strong brands across its fresh, frozen and long-life product offering, including Rhodes, Magpie, Bull Brand, Hazeldene, Portobello and Trout Hall. These brands are complemented by private label product ranges prepared for selected domestic and international retailers.
The Rhodes brand is either the number 1 or strong number 2 brand in most of its targeted product categories and has experienced strong growth in market share in recent years. In South Africa, Rhodes Food Group has leading market share positions in canned pineapple (50% share), tomato paste (33% share) and jam in glass jars (24%), supported by number two positions in canned fruit, canned jams and tomatoes.
Bull Brand is the iconic market leader in corned meat with 39% market share.
Pies and pastries are sold under the Magpie brand, as well as through Woolworths. An exclusive national supply agreement with Corner Bakery commenced in July 2014.
Rhodes Food Group is the exclusive supplier of ready-made meals and pies to Woolworths nationally, as well as being their exclusive provider of Ayrshire milk and cream in the Western and Eastern Cape.
In the financial year to September 2013, Rhodes Food Group reported revenue of R1.86 billion, with 35% generated internationally through exports to Europe, the Far East, USA, Canada, Australasia, Russia and the Middle East, and EBITDA of R227 million. For the nine months to June 2014, revenue increased by 34.5% over the prior period to R1.77 billion and EBITDA increased by 32% to R195 million.