Libstar Holdings share price surges after strong half-year results and takeover discussions

Libstar Holdings has seen its share price soar by 16.56% on Tuesday morning, closing at R4.43, buoyed by the publication of its robust first-half results, marking the company's most impressive performance since 2022.

This surge comes amid reports that the food company is engaging in preliminary talks regarding a potential takeover.

The company has cautioned investors that, while discussions with interested parties are ongoing, there is no certainty that these engagements will culminate in a binding offer to shareholders. A year ago, the share price was reported at R4.01, reflecting investor confidence amidst a turbulent economic landscape.

Libstar's growth trajectory has been particularly pronounced in the Ambient Products super-category during the six months leading up to June 30. Notably, branded revenue from Cape Herb & Spice's export channel surged by over 40%. In the Perishable Products segment, Lancewood has made substantial inroads into market share within both the cheese and yoghurt sectors.

CEO Charl de Villiers attributed these encouraging results to the company’s strategic transformation. “The results demonstrate the success of our transformation. By simplifying the portfolio, sharpening execution, and accelerating growth in priority categories, we are building real momentum,” he stated.

This positive interim performance emerges in the context of a challenging market environment. Consumers are grappling with rising food inflation and declining disposable income.

In response, Libstar has focused on safeguarding and expanding its market share, particularly within the Dairy, Wet Condiments, and Dry Condiments categories. It has also enhanced gross profit margins through refined raw material procurement, improved capital utilisation, strategic pricing, and effective cost management.

Key measures to streamline operations have included the closure of the Denny’s Mushrooms facility in Cape Town, the integration of Dickon Hall Foods into Montagu Foods, and the divestment of Umatie baby food line.

Additionally, the company has established a shared-services system in the Wet Condiments category and integrated various brands like Rialto’s Retail division, Ambassador Foods, and Cape Coastal Honey.

On the expansion front, an exciting new distribution agreement with General Mills has introduced brands such as Pillsbury, Nature Value, and Old El Paso into the South African market, hinting at a broadened footprint for Libstar in the region.

The financials paint a promising picture, with total revenue reporting a year-on-year increase of 6.7% to R5.96 billion. Normalised operating profit saw an impressive 16.7% rise to R296.25 million, while normalised EBITDA increased by 7.5% to R464.59m. Moreover, normalised headline earnings per share also rose substantially by 15.4% to 23.2 cents.

Cash generation from operations, which includes net working capital, soared by 79% to R503.72m, indicating robust operational efficiency. However, the company has flagged a persistent downward trend in its defined retail product basket’s value growth, signaling potential headwinds ahead.

To counter these challenges, Libstar is poised to further enhance manufacturing efficiencies, drive innovation, enhance product development, and reinforce value propositions amidst rising costs and inflation.

Additionally, the company aims to bolster its export market presence while maintaining flexibility in its supply chain through improved sourcing strategies and stronger supplier collaboration.

In a statement, Libstar reiterated its commitment to navigating short-term volatility while focusing on long-term sustainable value creation, a promise that will be closely watched by stakeholders and investors in the coming months.

BUSINESS REPORT