NOT being a trader in shares, I don’t often bother to look at the Stock Exchange News (Sens) on the day the reports appear. I review the full list before I begin writing each day. As it happened, yesterday I made a general comment on the latest results of the food producers that are the constituents of the JSE food index. I noted that the latest published results or trading updates of all the constituents of the index — AVI, Astral, Illovo, Oceana, Rainbow, Tiger Brands and Tongaat — had last reported on moderate to well above-average earnings growth.
In November, Astral published its latest results for the financial year to September. Its earnings growth had been moderate and the directors expected an improvement in this financial year. When Jean and I were building the Private Investor portfolio, we had expected better than moderate earnings growth for Astral last year. So much so that, in September (before the 2007 published results), we had seriously considered the company as an investment in the portfolio. On the grounds of risk aversion — Astral’s business is mainly in poultry — we decided not to buy the shares.
Probably while I was writing yesterday’s column, Astral published a voluntary trading update. As a result of Eskom’s chaos, the company’s trading conditions in February and March were seriously disrupted. Consequently, the company expects that its headline earnings for the half year to March will be 10%-15% lower than the earnings in the comparable half of the 2007 financial year.
Had we bought Astral shares in September, we would probably have paid about R122 per share. By the end of the year, when the share price reached R152, we would have been chuckling, and possibly clucking, on our paper gain of about 24%. At Monday’s close of the market, the share price had plummeted to R92,75, and we would have been choking on a paper loss of about 24% since our notional purchase price — a whopping loss of 40% on its peak.
The chart of Astral’s share price shows that the fall more or less coincided with Eskom’s commencement of what we now call load shedding. You don’t need a razor-sharp mind to figure out that some Astral shareholders realised the company was having problems.
The chart of Astral’s trading volume relative to its changing share price shows there was no sudden panic as the company’s problems were being discounted into the share price. Before concluding that those who have sold Astral have been wiser than the buyers, bear in mind that the interim results will reflect only half-year’s performance. The positive investment indicators for the second half of this financial year seem to outweigh the negative. The share price might now have good value, though I wouldn’t count on it.
This brings me back to Pioneer Foods, whose operational spread carries far less risk. Provided I’m not diverted by another Sens, Pioneer will be my theme tomorrow.
nBen Temkin’s e-mail is bentem@mweb.co.za.