Our opinion on the current state of QUANTUM(QFH)Quantum (QFH) is in the chicken business. It has four divisions - Animal Feeds, Eggs and Layers, Broilers, and an African division where it sells related products.
Quantum was obviously badly impacted by the drought in Southern Africa, but since that abated and the price of animal feeds came down, it has benefited from the much higher prices of eggs and the lower cost of feeds.
In general, the chicken business is a tough business. It is labour-intensive, which creates exposure to union action, it involves large quantities of working capital tied up in stock and, to a lesser extent, debtors, it is subject to unexpected disease threats like avian flu or Newcastle disease, and it has experienced the dumping of cheap chicken onto the South African market from Europe, Brazil, and America.
With top-class management, a sustainable profit can be achieved, but the industry is regarded as relatively high-risk by investors, which accounts for its low price-earnings (P:E) multiple and its high dividend yield (DY).
The unprotected strike at Kaalfontein Farm has restricted output and cost an estimated R10m. The company suffered an outbreak of HPAI at its Lemoenkloof Farm as well as loadshedding and labour unrest.
In its results for the year to 30th September 2024, the company reported revenue down 8.9% and headline earnings per share (HEPS) of 80.4c compared with a loss of 17.4c in the previous period.
The company said, "FY2024 will be remembered for the severe impact of highly pathogenic avian influenza (“HPAI”) on our layer farming and egg businesses, the Malmesbury feed mill explosion, leadership changes and dramatic fluctuation in our share price on the back of shareholder activity."
In an update for the 4 months to 31st January 2025, the company reported a significant improvement in trading conditions.
The company said, "...the Company benefited from improved throughput as a result of a recovery in its layer flock, no loadshedding in South Africa, relatively high egg selling prices and no HPAI outbreaks. Feed costs for the Current Period were relatively stable compared to the Previous Period."
Nobody knows what difficulties the business may experience over the next 12-month period. So, if you plan to invest in this share, be prepared for considerable volatility. This company sometimes has difficulty in passing on higher raw materials costs to consumers, especially in the current economic environment.
