Astral’s 2H22 proved challenging following a solid interim period and we anticipate a subdued FY23, particularly in the first six months. Following our interaction with management before the closed period together with the group’s FY22 trading update, we put a hold on this stock with a fair value of R193.2.
The trading update indicated that headline earnings per share (HEPS) for FY22 are expected to be between 118% and 128% higher (at between 2,677c and 2,799c) compared with the 1,231c achieved in FY21. Based on our analysis, we anticipate HEPS at 2,750c for FY22e mainly due to increased volumes in poultry supported by capital expenditure to enhance capacity and economies of scale. Furthermore, earnings growth was supported by enhanced margins derived from efficiencies in broiler production and partial cost recoveries.
Despite this, 1H23 is likely going to deliver a muted performance due to elevated soft commodity prices. Management note that broiler operations are unable to fully recover the feed costs via poultry selling prices. In addition, disruptions from loadshedding are adding operational costs with the group having to implement production cut-backs in October 2022. The delay in applying anti-dumping duties in SA as well as unreliable water supply add pressure on revenue and profitability in FY23.