Oasis Group Holdings, the asset manager with second biggest shareholding Rainbow Chicken, believes the integrated poultry producer sits on the verge of a “tornado” of earnings growth, said Oasis CEO and chief investment officer Adam Ebrahim.
Rainbow Chicken listed on the JSE last week as part of an unbundling of its parent RCL Foods. Oasis holds 8.5% of Rainbow Chicken, Remgro Group 80%, while there will be a free float of around 20%.
Ebrahim said RCL had worked hard over the past three years to restore Rainbow to financial sustainability after some years of decline. There were some structural changes, including regionalised, decentralised and fully integrated production and management from Hammarsdale, Worcester and Rustenburg, and in the past year, the introduction of a better breed of chicken, the Indian River chicken.
He said the group’s competitive advantages would provide “material savings” to Rainbow. It had already benefited the group by having more birds available than previously at a time when there was a national shortage of birds through the avian influenza outbreaks last year.
Production was also expected to benefit from the re-introduction of a second shift at Hammarsdale. Rainbow operations were currently also benefiting from R1.2 billion capital expenditure invested over the last 3 years.
Ebrahim said in a few days it would be the first quarter in a very long time that there was no load shedding. Rainbow had been spending about R10 million a month to deal with load-shedding, and a cessation of load shedding, if it continues, could add R120m to the bottom line.
Also counting in Rainbow’s favour was current lower soft commodity prices, which would also translate into savings for the group, such as in terms of poultry feed.
In addition, Ebrahim said he had met with Rainbow’s management regularly over the past three years, and he believes the group has a “great management team.”
“Whatever they told me 3 years ago they would deliver, they did, and where they didn’t, there were always good reasons for it, such as the outbreak of avian influenza over which they had no control. I have great confidence in them.”
He said that the Department of Trade, Industry and Competition’s recent questioning of the merits of the integrated model of poultry production, from a competition point of view, was misplaced, as it had been the integrated model of production that ensured there was poultry on the shelves during the avian influenza outbreaks last year.
The sugar and poultry industry Masterplans on the other hand had proven successful in making the industry more competitive, as they continued to attract investment spending in both sectors, he said.
Another factor likely to provide “goldilocks-like” tailwinds to the poultry industry was Oasis’ expectations of up to a 300 basis point cut in interest rates in the next 18 months, which would unlock more disposable income for consumers and boost demand for poultry.
Ebrahim said also that with the formation of the Government of National Unity, the country’s economy had already enjoyed a re-rating, such as from JP Morgan and Citibank. He anticipated the rating agencies would also re-rate the local economy more positively.
“Oasis is very positive about the economy in the short-to-medium term,” he said.
He said the South African poultry industry had been under severe pressure in recent years, due to among other things, high interest rates, declining disposable incomes that brought price in-elasticity, drought, and (highly pathogenic avian influenza) HPAI outbreaks in 2017, 2021 and 2023, elevated soft commodity prices between 2021 and 2023, load shedding, record feed prices in 2022, rising fuel prices, a weaker rand, difficulty with municipal services and growing presence of cheaper imports.
Ebrahim said that for RCL to bring Rainbow back to profitability despite all these pressures indicated immense resilience and competitiveness of the company.
BUSINESS REPORT