Food group Libstar shares surge, dividend eclipses earnings drop

Shares in South African food producer Libstar Holdings Ltd rose more than 13% on Wednesday after the company declared a maiden cash dividend though full-year earnings dropped.

In September, when the producer of Denny mushrooms reported its first interim results since listing in May, it decided not to declare an interim dividend, saying it would assess its full year operational performance before making any recommendations.

At 1357 GMT shares in Libstar were up 9.44% at R777 with the 22 cents per share dividend payment eclipsing a 16.1% fall in earnings. If the shares close at these levels, it will be the biggest daily jump on record.

The local retail sector is under pressure in a slow growing economy with high levels of unemployment, rising fuel prices and an increase in value added tax curbing consumer spending.

Libstar’s normalised basic and diluted headline earnings per share (HEPS) dropped to 73 cents from 87 cents in the previous year after taking a writedown on its business making gourmet teas, blended dairy and fruit concentrates drinks.

HEPS is the main profit measure in South Africa, which excludes certain one-off items.

“An impairment loss in the amount of R42 million was recorded in respect of the residual dairy-blend and fruit concentrate beverage operations, as the group deliberates its strategic options regarding this component of the business,” it said in a statement.

Group Chief Executive Andries van Rensburg said despite the toughest market conditions Libstar has experienced since its inception 14 years ago, the firm “managed to make up for our weaker trading performance in the first half of the year”.

Revenue rose 12.5% to R9.9 billion, with organic revenue up 5.1%, bolstered by the launch of Lancewood branded dairy products. Normalised earnings before interest, tax, depreciation and amortization firmed 4.6%.

Libstar has increased capacity and entered high-growth categories over the past year, buying Sonnendal Dairies, ready-to-eat food manufacturer Millennium Foods and Khoisan Tea.

It plans a frozen speciality bread facility, as well as a new plant to toast granola and alongside similar manufacturing initiatives in perishables and specialised food packaging.

“In the coming year, the benefits of new manufacturing facilities and added capacity is expected to positively impact F2019 trading results,” it said. ($1 = 14.3831 rand)