UPDATE: Tegel shares sink to record low as cheap chicken and rising freight costs trigger profit warning

Thursday 15th December 2016

Tegel shares sank to the lowest they've been since the poultry firm listed on the NZX in May after the company said it would miss its forecast earnings as a glut of chicken kept a lid on domestic prices and rising freight costs squeeze margins.

The stock dropped 16 percent to $1.30, less than the $1.55 price sold in the initial public offering earlier this year.

Tegel today said it expects annual underlying earnings before interest, tax, depreciation and amortisation of between $75 million and $85 million, down from projected proforma earnings of $87.4 million for the 2017 year, while net profit will likely be between $33 million and $41 million, compared to a projected $45.6 million.

"They're going to miss their forecast given to the market when they IPOed by about 8 percent - against that backdrop a fall of 16 percent seems a little excessive, but it's really not a good look to miss your own forecasts," said Mark Lister, head of private wealth research at Craigs Investment Partners. "There's a bit of the market shooting first and asking questions later and in all likelihood it's a little overdone, but I'm not surprised because it's something that investors are always very unhappy about - missing analysts' forecasts is one thing, but you don't want to miss your own numbers."

Tegel issued the profit downgrade when reporting a 4 percent decline in underlying ebitda to $35.1 million in the six months ended Oct. 23 due to weaker margins stemming from the oversupply of chicken pushing down prices. Revenue rose 4 percent to $296.3 million, lagging behind a 6.9 percent increase in the volume of chicken products sold.

"We have seen a period of lower domestic pricing this year," chief executive Phil Hand said in a statement. "This has been due to excess volume in the local market. We are, however, expecting some recovery in prices in the second half."

Net profit more than doubled to $15.1 million, though the year-earlier period was when the firm was privately owned and included $18 million of finance costs.

Tegel's board declared an interim dividend of 3.45 cents per share, payable on Jan. 27 with a Jan. 13 record date.

The company spent $15.9 million on capital expenditure in the period, installing a breast deboner in New Plymouth, and plans to do the same at its facility in Henderson in the current financial year.

Export revenue slipped 2.5 percent to $50.6 million in the half on flat foreign sales in volume terms. Still, Tegel said the international business "continues to strengthen" with the opening up of Australian market to a broader range of products, and new customers in the Middle East.

"The company is forecasting further growth in international markets through new products, existing customer growth, new customers and additional sales channels," it said.

BusinessDesk.co.nz

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