Our opinion on the current state of RHODES(RFG)

Rhodes (RFG) is a Western Cape manufacturer of convenience foods, started by Cecil John Rhodes in 1896. It has several well-known South African brands like Bisto, Bull Brand, and Hinds. It operates 15 manufacturing plants in South Africa and a fruit processing plant in Swaziland.

In its results for the year to 1st October 2023, the company reported revenue up 8.7% and headline earnings per share (HEPS) up 35.3%. The company's debt-to-equity ratio improved to 21.3% from 36.2%, and price inflation was at 12.9%. The company said, "Slower consumer spending and competitor promotional activity resulted in volume pressure in certain product categories as total group volumes declined by 8.3%. The rate of volume decline slowed as the year progressed, with regional volumes down 6.6% for the full year after declining by 8.0% for the first half."

In a trading update for the five months to 29th February 2024, the company reported a revenue increase of 5.1%, with price inflation of 7.9% and volumes down by 5.2%. The company said, "After reporting good revenue growth for the first quarter of the financial year to December 2023, sales of long-life foods in particular slowed in January and into February. The meat products category has sustained the turnaround reported in the previous financial year, with the vegetable and salads categories reporting an improved performance. The fruit juice and dry foods categories both delivered good growth."

In a trading statement for the six months to 31st March 2024, the company estimated that HEPS would increase by between 18% and 23%.

Technically, the share has fallen from a high of 2900c in October 2016 due to a bear trend. We suggested waiting for it to break up through its long-term downward trendline, which happened on 13th November 2023 at a share price of 1220c. It is on a P/E of 6.99, which looks reasonably priced, even cheap. We believe that the share will recover over time as the economy and rand improve and as the war in Ukraine is resolved. Sales of tinned foods to China declined sharply in the short term.