RCL Foods gets approvals to unbundle, list Rainbow

RCL Foods’ share price surged 3.62% on the JSE yesterday, capping a strong run in the company’s stock in the past year-to-date performance as investors cheered its decision to unbundle and separately list its chicken business, Rainbow Chickens.

RCL Foods said all conditions for the unbundling and listing of Rainbow Chickens on the JSE have now been fulfilled, helping the company’s stock to a 3.6% firming to trade at R11.45 per share.

The food manufacturer painted a green picture with its shares trading 8.3% stronger in the past seven days, 6.3% higher in the past 30 days and 29.9% firmer in the year-to-date comparative.

“RCL Foods has rallied lately as the market cheered the decision to unbundle one of the more cyclical portions of the portfolio, Rainbow Chickens,” said Anthony Clark, independent analyst with Smalltalkdaily Research.

The separate listing of Rainbow was a new phase in its journey, having resulted from “significant effort by the respective management teams”.

The two companies said it was “underpinned by confidence in the ability of Rainbow to operate on a standalone basis and deliver sustainable, attractive financial performance” over the long term.

“As indicated in RCL Foods’ latest group financial results for the six-month period ended December 2023, Rainbow has made significant strides in delivering on its strategy to restore through-the-cycle profitability by means of an appropriately structured and sustainable operational base,” RCL Foods said.

The responses shown by Rainbow, particularly in relation to (i) the successful implementation of a change of its chicken breed (a significant change to the genetics of its breeding stock) which was completed in the current financial year, and (ii) improved operational resilience in the face of significant headwinds experienced recently, have considerably demonstrated the benefits achievable from an improved operational base.

In the half year period to the end of December, earnings before interest, taxes, depreciation, amortisation and impairments (Ebitda) in RCL Foods increased by 48.6% to R1.5 billion, largely driven by a firming up in Rainbow which swung up by R276.7 million.

Underlining Ebitda in Rainbow firmed up by R225.1m to R286.8m, notwithstanding the impact of avian influenza amounting to R184m during the period.

During the period, Rainbow “swung back into a modest profit before tax of R17.84m after a loss of R392m” in its 2023 full-year period, said Clark, adding that finance costs in the company were worrisome,

“The high finance cost as a percentage is a concern. I await to see the balance sheet but it will weigh on Rainbow as it seems there was no cash infusion from RCL Foods to assist,” he said.