personal finance

Investors’ Chronicle: Hilton Food, WAG Payment Solutions, Caledonia Mining Corporation

BUY: Hilton Food (HFG)

Difficulties in the vegetarian and vegan markets continue to blight the food packing business, writes Christopher Akers.

Hilton Food served up strong profit growth in its annual results as it enjoyed a better than anticipated seafood arm recovery and a robust performance in its core meat business. 

The seafood business has been in recovery mode after being buffeted by inflation and price recovery issues, so the delivery of an annual operating profit was important. The progress was reflected in a 60 basis point increase in the overall operating margin to 2.4 per cent. 

On the meat side of things, the partnership with Woolworths in Australasia drove 7.2 per cent volume growth in that locale. This — and a full year of trading from salmon producer acquisition Foppen — helped total business volumes up 0.7 per cent, but this compared with growth of 4.3 per cent in the prior year as UK and Ireland and Europe volumes fell. 

Management warned of continuing challenges for its vegetarian and vegan business Dalco, as it pointed to “the structural market reset that has taken place in this sector” and confirmed it has consolidated the business into one operating facility.

There has been much fanfare about non-meat product potential, but as the weak performance of Beyond Meat has shown investors and consumers aren’t fully convinced. Almost £2mn of impairment was recognised over Dalco assets, being the site closure and a software issue. 

The shares trade on an undemanding 14 times forward consensus earnings. As RBC Capital Markets analysts correctly point out, “the wisdom of the last few years of capital allocation has been debatable”. But we are encouraged by the approach of new chief executive Steve Murrells, and the seafood turnaround is encouraging.

HOLD: WAG Payment Solutions (WPS)

The lorry fleet management software company is supposed to be in growth mode, but it is driving the wrong way, writes Mitchell Labiak.

There are still no signs of dividends for WAG Payment Solutions shareholders. The lorry management software and fuel cards payment provider, which trades as Eurowag, said: “At this stage, the group does not intend to pay dividends; instead, it intends to prioritise investment in growth.” No analysts predict payments before 2026.

Investors who have not received a penny and have seen the company’s share price sink since the initial public offering might be frustrated, but the company’s position is understandable. Rising wages, technology costs, impairment losses and a slump in revenue meant the company swung to a pre-tax loss in the last calendar year. Meanwhile, despite being heavily leveraged, Eurowag’s loan-to-value ratio has increased.

The sinking sales will be a blow to investors who bought into Eurowag’s growth story. Analysts remain bullish, with consensus forecasts predicting earnings per share (EPS) will hit 3.91p by the end of this year and 5.68p by the end of 2025. If true, 2023 will be a blip rather than anything significant.

The difficulty with judging these predictions is how wafer-thin its margins are even when it isn’t posting losses. As these results show, a minor setback can push the business into a loss. That wouldn’t be so bad if Eurowag had a healthy balance sheet to fall back on, but it does not.

Still, as bleak as all this sounds, much of it has been factored into the price. The stock trades at 11 times EPS for 2024 and eight times EPS for 2025. Should those predictions prove correct, Eurowag looks undemanding, perhaps even cheap. However, considering the scale of this setback and its rising debt, we remain neutral.

HOLD: Caledonia Mining Corporation (CMCL)

The Zimbabwean gold miner is growing, but was buffeted by operational difficulties and higher costs, writes Alex Hamer.

Caledonia Mining Corporation is at an awkward growth moment, undershooting production guidance for 2023 and reporting far lower profit numbers despite the strong gold price last year. The company operates one mine in Zimbabwe, and bought another last January. 

The main mine, Blanket, was consistent in 2023 despite power problems, which are common in the country. Production was 75,416 ounces of gold, while the company’s overall all-in sustaining cost almost doubled to $1,445 (£1,138) an ounce. The jump came from the new Bilboes mine and higher running costs at Blanket, and the already weaker gross profit was further knocked by a $5.5mn increase in administrative costs. 

This was driven by one-offs, such as the $3mn in advisory fees for the Bilboes deal (on a total spend of $65mn in shares), and a $1.7mn settlement for departed chief operating officer Dana Roets. 

Caledonia hopes to build Bilboes into a large open-pit mine, for which studies are ongoing, but its plan to make cash from the remaining oxide ores at the site was a failure. Early in 2023, the company said it could get 12,500-17,000 oz from the stockpiled ore, but managed 3,000 oz at a cost of $1mn a month. This effort stopped in September, with the site put into care and maintenance. 

The outlook for 2024 is a similar production level at a far lower cost, though the company is yet again looking for answers to the power woes. “Further work is in process to reduce Blanket’s overall electricity consumption by utilising the available shafts and machinery more efficiently,” the company said. Liberum analyst Yuen Low forecasts a 90 per cent cash profit rebound in 2024, to $56mn.


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