Unloved African food producer Zambeef Products (ZAM:AIM) is on the rack, slumping 9.8% to 27.63p on another disappointing trading update. The vertically-integrated agri-business warns of a lurch into first-half losses due to local currency weakness, increasingly competitive market conditions and the effects of animal disease.


The £76 million cap beef, chickens and milk producer and food retailer, with operations spanning Zambia, Nigeria and Ghana, is a long-term beneficiary of growing Sub-Saharan protein consumption trends. Yet Zambeef's share price hasn't provided portfolio nourishment of late, weak in the wake of a disappointing performance last year reflecting a combination of an imported beef contamination scare and cost escalation.


Web chart - Zambeef - March 2014

Sentiment is souring again with Zambeef, which made an interim $8.4 million profit at the adjusted pre-tax line last year, set to slip into the red. Though sales for the half to March were broadly in line with expectations, margins were hit by weakness in the Zambian kwacha – increasing the group's dollar-denominated costs in its edible oils, stock feed and cropping divisions – as well as pork product restrictions following an outbreak of African swine fever in Zambia.


Zambeef's animals haven't been struck down by disease. Yet government-imposed restrictions on the movement of pigs and sale of pork products, designed to mitigate the impact, have hurt Zambeef's 'Master Pork' business.


Also crimping margins is pricing in the retail sector, still recovering from last year's issues surrounding imported beef. Amid increasingly cut-throat competition, Zambeef's CEO Francis Grogan says the company is finding it harder to pass escalating costs onto consumers.


Foreign exchange movements and the impact of animal disease may be temporary, although growing competition in key sectors could be a new reality with which Zambeef has to contend.


'Although administration costs have been held stable the company will report an adjusted loss before tax in the first half of 2014 and is unlikely to be profitable in the full financial year', writes Panmure Gordon, which has put both forecasts and recommendation under review. Before today's news, the broker had forecast $5.9 million of full-year taxable profits.


Edward Hugo, agriculture analyst at VSA Capital, laments that 'ZAM has suffered from various issues over the past two years. It looks like 2014 will provide continued challenges with consensus estimates to be revised downwards following this update.'

Issue Date: 31 Mar 2014