Crossing the road
1H23 RESULT
Need To Know
- Sales and earnings ahead of consensus
- Volumes flat but prices up as earnings recovery begins
- Rising costs remain a headwind
- Interim dividend 4.5cps, payment 6 April
Inghams is finally seeing a turnaround in demand but is still hindered by rising input costs. The earnings recovery is evident, just not speedy.
Result. Underlying EBITDA fell -12.2% excluding a $16.2m restructuring cost. ING achieved 8.5% increase in its core poultry ASP (average selling price) in Australia and +10.7% against 2H22.
Volumes were flat in Australia and down slightly in New Zealand. The retail channel (-6.6%) was cycling stronger demand during the pandemic. QSR volume increased 5.4% as customers flocked back to their favourite finger-lickin’ outlet and others. Eating out rather than home-cooking also boosted Food Service volumes (+12.9%), but the group total volume came out about even for core poultry (human consumption meat).
Capex. ING is investing in more automation in processing. Four portion cutting machines ($30m) across FY23-25f to suit requirements from QSRs and retail customers. Four new automated leg deboning machines ($17m) in the next two years as demand for deboned thigh and drumstick meat increases. A $30m rearing farm in Casino, NSW to service the Queensland market will be completed by November 2023.
Outlook. Higher feed costs are persisting due to logistics and supply constraints. Inflation also not helping but the ASP is beginning to offset this. More investment in automation and network should eventually provide a benefit.
The higher interim dividend is a sign of confidence from the Board. Net debt to EBITDA at 2.5x is above its target. ING has renegotiated its debt facilities, extending for two years while gearing remains high.
Investment View
The result demonstrates some positive momentum, particularly in pricing, that suggests a better 2H23f outcome is forming. The market will be wary of persistently high input costs impacting margins.
ING’s transformation is making good progress and should ultimately provide meaningful benefits. Automation of food processing should reduce the reliance on a heavy labour cost.
A measured and steady earnings recovery is adequately reflected in the PER at 19x FY23f.
Figure 1: 1H23 Result
Stock Overview
Share Price
Company Overview
Inghams is the largest integrated poultry producer across Australia and New Zealand.
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