Quantum Foods Holdings is a fully-integrated primary agricultural business operating in South Africa and other African countries, focused on animal feeds, eggs and layer livestock, broilers and related businesses. The group’s history stems back to being a wholly-owned subsidiary of the Pioneer Food Group. The company was unbundled from Pioneer in 2014, and Quantum Foods shares were listed on the Johannesburg Stock Exchange (JSE).

In South Africa, animal feed is manufactured and put up for sale under the Nova brand, with external sales representing around 50% of total feed volumes. The balance is mostly consumed internally by integrated layer and broiler poultry operations. Eggs are sold mainly through the Nulaid and Quantum brands, with layer livestock (day-old chicks and Lohmann hens) sold under Bergvlei Chicks. Broiler chicks are sold through the Bellevue Chicks brand, mainly to third-party abattoirs in the Western Cape.

The group also operates a broiler and layer breeder business, feed business and egg business in Zambia, and a broiler and layer breeder business and feed business in Uganda.

Quantum Food recorded revenue of R3.5 billion in 2015 and has a JSE market cap of R615 million.

Quantum Foods share price and overall performance have not escaped the impacts of South Africa’s economic downturn, with significant raw material price increases, drought, rand devaluation and increased consumer pressure all creating unfavorable trade conditions. Operations outside South Africa have also been affected by tougher industry conditions and currency volatility.

The broiler business has managed to withstand these headwinds as a result of re-positioning, with financial data for the first half of 2016 indicating a rise in operating profit from R14 million to R66 million. Operating profit from animal feeds rose marginally from R30 million to R31 million. A decision to buy the Olifantskop feed mill contributed to the results. Gains were offset by a R19 million loss in eggs and layer livestock, driven by high input costs, weak farm performance and poor packing station efficiencies. Profitability is only expected when raw material prices stabilise. The African operations recorded a drop in operating profit from R14 million to R3 million.

These negative results all contributed to a total drop in operating profit to R76.5 million from R82 million.

The group has forecast that trading conditions will remain challenging for the foreseeable future, characterised by high raw material costs and the ongoing drought. The egg business is expected to remain severely pressured, and conditions in the rest of Africa will also remain constrained, although expansions in Zambia are expected to positively contribute to results. Management will buy into stringent cost reduction and operational enhancements across the business in order to restore stability and improve Quantum Foods share price. The live online stocks chart shows that Quantum Foods shares have fallen from R4.05 in 2015 to R2.65 in October 2016, and will remain an unappetising buy in the near term.

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