Lets start with the Economic indicators : GDP growth rate were 4.8% and 4.9% respectively for 2015 and 2016. GDP forecast for 2017 expected to go up surpassing 5% from Q2. The improving per capita income is expected to improve the living standards and purchasing power of consumers. On the other hand, gradually increasing Interest rates and Tax hikes will give a pressure on the inflation therefore some impact on chicken demand. Government introduced a price control on skinless chicken capped at a price of Rs. 495/- per kilogram compared to 480/- last year. All these economic factors working together we have to see how the Demand is affected and how the Poultry sector performs in to future
Something else to be considered with our inconsistent Government policies affecting the sector captured in BFL Annual Report which also comes with a suggestion how to overcome it
…..The absence of a consistent Government policy for the poultry industry has caused many challenges and difficulties for the poultry industry over the years and in particular with regard to the sourcing of raw materials for animal feed. As a result, feed-millers are generally compelled to import raw materials at high prices due to the delay in obtaining import permits, over which the industry has no control. Going forward, a balanced policy needs to be put in place by the Government to safeguard the interest of all stakeholders. This could result in lower cost of production whereby the benefits can be passed onto the consumers. The country would also benefit by saving valuable foreign exchange by enabling feed-millers to source raw materials at low prices. Our suggestion is to guarantee a mutually agreed reasonable price to the local maize farmers so that the entire Maha maize crop could be purchased directly by. the feed-millers. Thereafter, feed-millers should be permitted to import the balance requirement before the next Maha season, without authorities imposing any undue restrictions….BFL Annual Report 2015/16
Increases in poultry consumption are primarily linked to four key factors namely population growth, improvements in incomes, chicken prices relative to those for competitive meats and dietary preferences. Global poultry meat uptake is forecast to increase by 1.7kg per person from around 13.2kg to in 2013 to 14.9kg in 2023. But to note something where the highest chicken consuming nations such as in Americas consumptions rose from 31.5kg to a new 'high' of 38.6kg. The per capita consumption of poultry in Sri Lanka is around 9 kilograms. This is relatively low compared to most other countries in East Asia and there is an ample potential to expand the local poultry sector
So those who invest for the future in this sector are going to win. My pick is BFL in this sector due to its investment in related diversification strategies
…….We hope to continue to expand our broiler farms in the years to come. We also plan to establish a new state-of-the-art commercial hatchery, which would be gradually upgraded to an automated hatchery in the subsequent three years. In addition, the commissioning of the feedmill has completed our vertical integration and this should strengthen the Group’s position in the poultry sector. .BFL Annual Report 2015/16
Driving factors behind BFL continuing good performance extrceted from BFL Annual Report 2015/16
Process and productivity improvement
sustained, strong demand for broiler meat
high prices that prevailed for broiler day-old chicks (DOCs) on account of the consistently strong demand for DOCs
Equity stake in Fortune G-P Farms (Lanka) Ltd. was increased from 39.54% to 50%
Brand value moved up 7 notches YoY to the 57th position in the ‘Most Valuable Brands’ 2016 rankings reported and published by Brands Finance Lanka.
the downward revision of the electricity tariff rate applicable for the poultry industry had a favourable impact on the Company, Group and Industry during the year.
The feed prices were increased by 4% in the first quarter of the financial year on account of high prices of input raw materials. The quality of feed purchased has been poor at times leading to the suboptimal performance of the birds specially during the first half of the year. In the second half of the year, we sourced our feed from a different supplier which led to the excellent performance of our broiler farms and out growers
Lets see the BFL numbers.
The attractive thing here is the GP% growth. This is a clear sign of there process and productivity improvement. The rate at which its NP growing is phenomenal.
I expect the EPS for 2017 to end somewhere close to Rs.51-59. So the value at PE of 5 itself is Rs.250-300. Moreover the net asset is growing in a healthy rate. 2016 MArch it was 165.32 and by 3Q 2017 it is 196.54. So its way above current market values
When the market runs I expect this to shine giving atleast 50% or more gain