AVI vs. Libstar

It’s always fun when groups in the same sector release results just a day or two apart. I enjoy contrasting the performance and understanding why things can look so different. In Ghost Bites today, I’ve focused on AVI (JSE: AVI) and Libstar (JSE: LBR) in the food / FMCG sector.

But before we get there, I’ve got two companies for you that care enough about Ghost Mail to support the platform through their corporate announcements.

The first is Super Group (JSE: SPG), with excellent numbers for the year ended June 2026. Despite all the disruption to the global trade environment, they still grew revenue from continuing operations by 6.2% and EBITDA by 15.5%. It only gets better as you move down the income statement, with HEPS from continuing operations up by 36.0%.

It probably won’t surprise you to learn that the South African automotive business has been adding dealerships that represent the Chinese and Indian brands. Ditto for the UK business, where the Chinese brands are now 24.9% of total new vehicle sales in the UK.

Super Group has placed a summary of the results on the platform. It includes the key numbers and some useful commentary on the business, as well as a link to help you learn more. When management has such a bullish tone, it’s worth investing some time to find out why.

Next up, we have PBT Holdings (JSE: PBT) with a B-BBEE transaction that will bring a new investor into one of the company’s wholly-owned subsidiaries. With 72% of the group’s clients being in the financial services sector, it’s critical to make sure that the group is competitive in terms of procurement.

The idea is to avoid relying on the Modified Flow-Through Principle, which is based on the listed company’s shareholder demographics – something that PBT Holdings has no control over. By plugging in an investor at subsidiary level, PBT is implementing a sensible structure that avoids many of the pitfalls of legacy structures.

Keen to learn more? The company has provided an easily digestible press release to accompany the more complex SENS announcement.

And remember to sign up for Unlock the Stock on Thursday, featuring Redefine Properties (JSE: RDF). Having recently hosted a Capital Markets Day, the management team is excited to share the details of the longer-term strategy. Attendance is free, but you must register here.

Looking for something you’ve read recently? This link has all the previous editions of Ghost Mail (and Ghost Mail Weekender). Share it with your friends and bring them into the community!

In the past two days, we saw important releases from a local food duo: AVI and Libstar. The long-term performance of the companies couldn’t be more different:

It looks like these lines had a fight in early 2023 and never reconciled. But as you can perhaps see in that chart, the gap between the lines has been reasonably steady in recent times.

Here’s what it looks like on a 12-month chart:

The dividend yields aren’t vastly different either. AVI trades on a 7.6% yield at present, while Libstar is on 8.2%. The Price/Earnings multiples tell a vastly different story though, with AVI on 11.3x vs. Libstar at 6.2x.

Aside from immediately telling us that these companies have structurally different dividend payout ratios, these multiples also show us that the market puts a premium on the AVI business relative to Libstar. You’re about to find out why.

Let’s begin with AVI’s latest numbers, which cover the year ended June 2026.

Revenue was up by only 1.4%, with the Entyce Beverages segment (the largest contributor in the group) struggling with lower sales off a strong prior year base. Tea, coffee and creamers were all under pressure. Snackworks did well though, with biscuit revenue putting in a better performance than the snacks categories. I&J also deserves a mention, with revenue up 10.2% vs. the prior year thanks to excellent performance in the export markets.

Gross profit was 0.8% higher, so you can immediately see that there was pressure on gross margin. AVI optimistically refers to this as a “protected” gross margin, even though it declined from 42.7% to 42.4%.

Things get much better below that, with operating profit growing by 4.4% as that margin expanded from 22.2% to 22.9%. AVI has a strong reputation for cost control and tight management of the group. Special mention must go to I&J with a 47.5% increase in fishing operating profit to R395.6 million, although a chunk of this benefit was offset by the horrible conditions in the abalone market and a significant increase in the operating loss in that business to R77.6 million.

The next chart brings it together rather well, showing how the growth in group operating profit has slowed in the past couple of years as the core businesses have found things harder. Note how the increase in I&J over the past two years has been offset by the decline in Personal Care and Footwear & Apparel (both of which at least turned higher in FY26):

By the time you reach the bottom of the income statement, you’ll find that a decrease in interest rates and average borrowing levels helped HEPS grow by 5.3%.

The reason for the high dividend yield in the context of the double-digit P/E multiple comes through in the underlying details of the dividend. The total normal dividend was 663 cents per share vs. HEPS of 767.9 cents.

There’s also a special dividend of 300 cents per share, with AVI looking to take the gearing on the balance sheet (the extent of debt vs. equity) to the upper end of the targeted operating levels in the 2027 year. Market systems will generally exclude the special dividend from the calculation of dividend yield, as the whole point of distinguishing it from the normal dividend is that management is sending a message that it isn’t an indication of the sustainable payout.

Now we get to Libstar, where the results cover the six months to June 2026. This distinction is important, as this is only their interim period vs. the full-year numbers at AVI. In the food sector, looking at different periods can create distortions that can lead to the wrong conclusions about the relative performance.

Unlike AVI, which enjoys a strong reputation for delivery, Libstar is seen by the market as a mouldy piece of its Lancewood cheese in the fridge. You might be ok if you chop off the bad bits and take a chance. You might also be sick.

After hosting a capital markets day in March that set out the group’s plan to get things back on track, this period has fallen short of expectations. It’s been a very tough time though, with low levels of food inflation, heightened pressure on consumers and worries around fuel and other cost issues in supply chains against the backdrop of the conflict in Iran.

Libstar could only manage revenue growth of 0.7% for the period. Aside from the consumer challenges, the numbers were also impacted by issues like the loss of contract manufacturing volumes.

Gross margin contracted by 70 basis points to 21.5%. This is the bit where I point out that Libstar as a food producer is running at a lower gross margin than the leading supermarket groups. That’s definitely not how the sector is supposed to work.

With normalised operating profit down by 10.9%, the associated margin has declined from 5.3% to 4.7%. These are paper-thin margins for a company carrying manufacturing risks.

HEPS as reported fell by 29.1%. If you accept management’s view of normalised HEPS (taking out forex and other non-recurring or non-trading items), you’ll find a decline of 2.4%.

Here are two more numbers that investors won’t enjoy chewing on: while cash generated from operations fell by 31.9%, capex jumped by 73.6%. That’s a very unhappy trajectory for the balance sheet, even if the end result will be a project like a “mega sauce factory” – a fever dream for any preschooler.

In a fine example of optimistic corporate PR, Libstar refers to “resilience” in the group thanks to cash generated from operations (before net working capital changes) declining by only 5.3%. Or, put differently, if you completely ignore the fact that the group needs inventory, has to wait to get paid by its customers and must also pay its suppliers, then cash generation was only down by 5.3%. Sigh.

If Libstar is going to get even close to the multiples enjoyed by AVI, management will need to do a spectacular job in improving the underlying performance. The market is a lot smarter than the glossy commentary about cash flow would suggest.

Do your own research and speak to your financial advisor. Nothing you read or listen to in Ghost Mail should be interpreted as financial advice. This is not a complete review of SENS and does not replace the need for you to refer to company announcements and reports yourself. Every effort is made to avoid errors in Ghost Bites and related podcasts, but I am only human.

US markets drifted lower overnight in broad based weakness, while oil pushed higher on concerns that a prolonged Middle Eastern conflict threatens global inflation and, in turn, lending rates. Iran-backed Houthi forces in Yemen attacked Saudi energy facilities, adding to the geopolitical risk premium being priced into crude.

US inflation data remains the key focus this week, providing the final input ahead of next week's rate decision. The CME FedWatch tool currently favours a near 60% probability of a 25 basis point hike.

Asian equities are trading mixed this morning as a rebound in AI and semiconductor stocks offsets broader weakness tied to escalating geopolitical tension.

The dollar is flat on the day. Gold is attempting to rebound off yesterday's lows, while copper is testing new high territory, a move supported by the threat of increased US tariffs.

The rand continues to trade just below the R16/$ mark, and we expect a flat to slightly lower open for the JSE All Share Index.

This update is provided by Shaun Murison, Senior Market Analyst at randswiss.com. Connect with him on LinkedIn here and follow him on X here.

Key Indicators: 

USD/ZAR R15.98/$ | US 10yr 4.79% | Gold $4,402/oz | Platinum $1,848/oz | Brent Crude $95.07