Our opinion on the current state of LBR

Libstar (LBR) is a recently listed decentralised food and beverage company that specializes in producing "consumer packaged goods." The company successfully raised R3 billion in an initial public offer (IPO) in May 2018. Libstar boasts ownership of prominent brands like Denny, a leading mushroom supplier, and Lancewood, renowned for its dairy products and other food brands. With a diverse portfolio, Libstar manufactures over 9000 products and has introduced 88 new products in the past six months alone.

One of Libstar's key strategies involves producing private label brands for major retailers such as Spar, Woolworths, Pick 'n Pay, and Shoprite. The company operates with a decentralized structure, where autonomous production units receive support and investment from a centralised head office. Additionally, Libstar actively engages in acquisitions, providing capital, expertise, and support to bolster its operations.

However, Libstar faces challenges stemming from various economic factors, including load-shedding, civil unrest, retrenchments, high unemployment, the lingering effects of COVID-19, and recent developments in central Europe. Given its heavy reliance on consumer spending, these factors significantly impact its performance.

In its financial results for the year ending 31st December 2023, Libstar reported a 5.2% increase in revenue, while normalised headline earnings per share (HEPS) declined by 11.2%. The company attributed 10.0% of its sales growth to selling price inflation and mix changes. However, sales volume experienced a 4.8% decline across retail, industrial, and export channels.

Moreover, Libstar faced a notable increase in net finance costs on interest-bearing debt, rising by 53.3% due to the full-period impact of the Johannesburg interbank average lending rate (JIBAR) compared to the previous period.

Currently, Libstar trades at a multiple of 7.34 with a dividend yield (DY) of 3.43%. From a technical standpoint, the share has been on a downward trend for some time. It is advisable to wait for a clear break above the long-term downward trendline before considering further investment.