Our opinion on the current state of QUANTUM(QFH)Quantum (QFH) operates in the chicken business, with four key divisions: animal feeds, eggs and layers, broilers, and an African division where it sells related products. The company was significantly impacted by the drought in Southern Africa, but as the drought conditions eased and the price of animal feeds decreased, Quantum benefited from higher egg prices and lower feed costs.
The chicken industry is known to be challenging. It is labor-intensive, exposing companies to union action, and it involves substantial working capital tied up in stock and debtors. The industry is also susceptible to unexpected disease outbreaks, such as avian flu or Newcastle disease, and it has faced challenges from the dumping of cheap chicken into the South African market from Europe, Brazil, and America. Despite these challenges, with top-tier management, profitability can be achieved. However, due to the inherent risks, investors generally view the sector as high-risk, which is reflected in Quantum's low price-to-earnings (P:E) multiple and high dividend yield (DY).
The unprotected strike at Kaalfontein Farm has restricted output and cost the company an estimated R10 million. Quantum also suffered an outbreak of highly pathogenic avian influenza (HPAI) at its Lemoenkloof Farm, in addition to dealing with loadshedding and labor unrest.
In its results for the six months to 31st March 2024, the company reported revenue down 13% and headline earnings per share (HEPS) of 21.7c, compared with 2.9c in the previous period. Quantum said, "During the current reporting period the average price of yellow maize on the South African Futures Exchange (“SAFEX”) decreased by 16.6%; and the average landed price (Cape Town harbour) of soya meal decreased by 5.7%."
In a trading statement for the year to 30th September 2024, Quantum estimated that HEPS, "...will be at least 87.4 cents higher than the loss per share of 17.4 cents reported for the financial year ended 30 September 2023." The future remains uncertain, and the chicken business is prone to volatility. Prospective investors should be prepared for fluctuations due to factors such as raw material costs and operational challenges in the current economic environment.
On 7th March 2024, the company announced that Astral Foods had sold 9.77% of its stake in Quantum. This sale led to a 73% jump in Quantum's share price, as speculation arose about a potential takeover. However, on 13th March 2024, Quantum announced that it had received a letter from Country Bird Holdings (CBH) indicating that it had no intention of making a takeover bid.
