Our opinion on the current state of AVI

Anglovaal Industries (AVI) is a generalised producer of consumer products in the food, cosmetics, and apparel sectors. It has a diverse range of very well-known South African brands such as I&J fish, Five Roses tea, Salticrax, Frisco, Provita, Yardley, Spitz and Kurt Geiger. The company announced that it had sold its Australian sea food company Simplot for R633m yielding a net after-tax profit of about R370m. Over the decades, this share has undoubtedly been one of the best blue chips trading on the JSE. Its share price has shown a remarkable rise over the past twenty years. 20 years ago, the share was trading for around 150c and today it trades for about R65 at a cyclical low point. It has been a steady payer of dividends throughout that period. An investment in Anglovaal is an investment in the South African economy, but one which has shown itself to be virtually recession-proof until COVID-19. The corona virus has had an impact on consumer spending and the AVI share price fell quite heavily because of this. More recently it has been falling because of the crisis in Ukraine. In its results for the year to 30th June 2023 the company reported revenue up 7,8% and headline earnings per share (HEPS) up 4,3%. The company said, "The financial environment remained difficult with high levels of load-shedding negatively affecting our manufacturing, distribution and retail operations. The impact was mitigated through back-up power solutions but nonetheless added R58,5 million to direct operating costs for the financial year. The Company has invested in back-up power options for a number of years and continues to do so." In a trading statement for the six months to 31st December 2023 the company estimated that HEPS would increase by between 16% and 18%. During the six months group revenue increased by 7,1%. The company said, "Entyce Beverages did not fully recover input cost pressures, but increased sales volumes in key categories and improved factory efficiencies protected margins and supported sound operating profit growth." On a P:E of 14,88 and a dividend yield (DY) of 4,68% the share looks reasonably priced, even cheap. In our view, this company will improve as the South African economy improves and it should be accumulated on any significant weakness. We advised waiting for a clear break above its long-term downward trendline which happened on 8th November 2023 at a price of 7418c per share. The share has subsequently moved up to 8237c.