Our opinion on the current state of RCL

RCL is a prominent South African food, sugar product, and chicken producer, with 80.4% ownership held by Remgro. The company boasts a portfolio of well-known South African brands, including 5 Star maize meal, Farmer Brown, and Yum Yum peanut butter. RCL faces competition from imported sugar, chicken, and other food products. It encountered challenges due to the listeriosis outbreak, which negatively impacted the processed meats market and incurred costs estimated at around R158 million. The company has also grappled with a weak economy, reduced consumer spending, and high unemployment rates.

RCL, through the SA Poultry Association, is actively petitioning the International Trade Administration Commission (ITAC) for an 82% increase in tariffs on imported chicken. In its financial results for the year ending June 30, 2023, RCL reported a 17.3% increase in revenue but a substantial 42.4% decline in headline earnings per share (HEPS). The company attributed the negative overall Group result to continued unrecovered cost pressures in its Rainbow division, despite delivering a solid underlying performance in its core Value-Added Business (underlying EBITDA up 10.8%).

RCL is generally regarded as a well-managed company. In a trading statement for the six months ending December 31, 2023, the company estimated that HEPS would increase by at least 30%. Notable corporate actions include Remgro increasing its stake by acquiring 100 million shares at R8.05 each on December 2, 2020. Additionally, on March 29, 2023, RCL announced the sale of Vector Logistics for R1.25 billion.

From a technical standpoint, RCL's share price has been trending sideways and downward since reaching its peak on February 9, 2022. It is advisable to await a clear breakout above the long-term downward trendline before considering an investment.