Earnings Report /

Dairiboard Zimbabwe: FY 19 earnings update

  • Top line sustained by pricing adjustments as Food and Beverage volumes fall

  • FY 19: Inflation-adjusted pricing and steady milk volumes drive earnings

  • Price adjustments and cost containment to defend bottom line. Updating our recommendation to a BUY at current levels

Tatenda Makoni
Tatenda Makoni

Equity Sales Trader

IH Securities
21 May 2020
Published byIH Securities

Dairibord overall sales volumes were down by 17.0% y/y constrained by input supplies. Encouragingly, the intake of raw milk increased 10.0% compared to the industry average of 7.1% as the Group’s efforts to increase domestic supply of milk and reduction of reliance on imported milk powders continued to yield results. Liquid milks were up 0.2% while Beverages and Foods were down 22.7% and 39.1%, respectively. 

Due to sustained volumes in the milk segment coupled with the gradual increases in selling prices the Group registered 293.3% y/y growth in revenue to ZWL$497.22mn for FY19 from ZWL$126.44mn in prior year based on historical results. 

EBITDA margins improved from 12.0% to 16.5% translating to 440.71% y/y increase in EBITDA to ZWL$81.99mn.

Going forward, the group’s strategy entails continued import substitution driven by supporting milk production initiatives, cost containment and defending market share. While the demand side of liquid milk has been constrained by weakening disposable incomes, the dairy industry’s volumes supply side remains below the market’s needs. Milk production at circa 75mn litres is unable to satisfy the estimated demand of 120mn litres. 

Our view is that Liquid Milk volumes will remain steady at a growth of 0.1% for FY 2020, offsetting a continued decline in volumes from the Beverages and Food segments that we estimate at 17.4% and 22.4% respectively. Food and Beverages will be adversely affected by subdued disposable incomes as consumers prioritise basic foodstuffs.