Zambeef – ploughing ahead

Despite having only joined AIM in June, agricultural concern Zambeef Products is hoping to push into regional heavyweight Nigeria.

The company, which joined the junior market this June in an IPO that raised $55 million (£34 million) at 38.06p a share, operates as a food producer in areas such as edible oils, stock feed, flour, bread, chicken, eggs and pork. In addition, the company – which describes itself as the first Zambian business on AIM – operates a retail division that sells its produce in a range of stores across the country. The company is dually listed on both AIM and the Lusaka Stock Exchange.

Zambeef was founded by Irishman Francis Grogan, together with Zambian-born Carl Irwin. Grogan came to the country after several years spent farming in Ireland, and helped to build the company over several years.  Crucially, Zambeef’s chairman is Jacob Mwanza, a former governor of the Central Bank and a board member at the Lusaka Stock Exchange.

Having made considerable progress in Zambia – a country with only 13 million people – the group is determined to focus on Ghana and Nigeria, which have  populations of 23.8 million and 154.7 million respectively, through a partnership with Africa veteran Shoprite. The proceeds raised in June are to be used to fund the purchase of a number of assets in Zambia, to help its edible oil and feed business as well as to increase production.

The company recently issued a trading update for the year to September in which it remarked that it was making progress in Nigeria, where it is currently building a farm in Ogun State for one in which it is planning to construct a feedlot, abattoir and processing plant to supply meat to the Shoprite outlets.

Yusuf Koya, Zambeef’s finance director, who has worked in both the UK and Zambia, argues the group will benefit from the ‘continued growth of the Zambian economy’, which is currently expanding amid a buoyant commodities market (Zambia is Africa’s biggest copper producer).

Zambia remains one of the most politically and economically stable countries in Africa, a democracy that recently held elections in which new president Michael Sata took power. With rising demand from China and India, Koya remarks that Zombia has ‘rising foreign currency reserves’ and a debt as a proportion of GDP that is ‘much lower than most countries in Europe’.

Analysts at Religare are forecasting pre-tax profits of $8.6 million (EPS: 4 cents) on sales of $176 million for the year to September 2011. In 2012, profits of $20.9 million (EPS: 8 cents) are pencilled in on turnover of $228 million, while for 2013 profits are expected to climb to $25.2 million (EPS: 10 cents) on revenues of $263.9 million. A dividend of 3 cents is forecast for both 2012 and 2013. Religare estimates net debt to be $40 million with interest cover of 3.5x forecast for 2011.

As a relative newcomer to AIM, investors may be reluctant to commit to the company despite the impressive sum raised upon it’s IPO. However, the company has a number of drivers that make for a compelling investment case.

Zambeef has a dominant position in the Zambian market, where it holds a near-monopolistic position in a country where the retail network is predominantly compromisedof small independent traders.

Furthermore, it operates a diverse business, exposed to markets varied in nature from soya and cattle to pork and edible oils.

The key challenge for Zambeef is Nigeria, Africa’s most populous nation and a country that has a strong desire to increase its consumption of meat as disposable incomes for the urban poor rise.

Risks include political instability, threats in the form of disease to livestock and the possibility of a drought or related problem affecting its business. Like most companies in the sector, the company is not without risk and should be considered a long-term investment.