Premier Group’s recipe to beat the market

Premier Group has emerged as the standout performer among listed food producers this year, bucking a broader sell-off in consumer stocks as geopolitical tensions, higher fuel prices and stretched household budgets weigh on the sector.

While Premier’s share price has gained year to date, rivals Tiger Brands, AVI and RCL Foods have all suffered double-digit declines, despite continuing to generate strong cash flows and pay attractive dividends.

The divergence marks a sharp reversal from the optimism that surrounded consumer stocks at the start of 2026. Falling inflation, lower interest rates, a stable government of national unity and South Africa’s removal from the grey list had boosted investor sentiment.

That optimism faded when conflict in the Middle East sent oil prices sharply higher, reigniting inflation concerns and prompting central banks to pause their rate-cutting cycles.

Lebeko Shai, portfolio manager at Abax Investments, said the sector entered the year at unusually high valuations before geopolitical events changed the investment landscape. “Domestic company share prices across the board had ended 2025 on a positive note, with the momentum continuing into the first few months of the year,” he said.

“The developments in the Middle East raised fuel prices, reduced consumers’ disposable income and increased companies’ operating costs. Consumer-facing companies’ share prices reacted negatively.”

Analysts say Premier’s outperformance has been driven less by macroeconomic conditions than by strong execution.

Sean Culverwell, investment analyst at Anchor Capital, said Premier has consistently delivered superior earnings growth since relisting on the JSE, materially outperforming its peers.

He said management had invested heavily in manufacturing capacity ahead of competitors, helping to improve margins, product quality and service levels while steadily gaining market share.

The group, whose brands include Iwisa maize meal, Blue Ribbon bread and Snowflake flour, has also benefited from strong cash generation, allowing it to reduce debt inherited after its listing by Brait. Lower finance costs have provided a further boost to earnings.

Culverwell believes the growth story remains intact. The commissioning of Premier’s Aeroton super-bakery is expected to improve margins and ease bread production constraints in Gauteng and surrounding inland markets.

Premier’s acquisition of RFG Holdings is also viewed positively, with analysts expecting operational efficiencies and cost synergies from combining complementary food portfolios.

While the stock now trades at a premium to peers, Culverwell said investors appear willing to pay for its consistent earnings growth and execution.

Shai agreed, describing Premier’s performance as a structural re-rating. He said earnings per share have compounded by about 28% annually since 2022, while investor confidence in the company’s long-term growth prospects has improved significantly since its listing.

Meanwhile, Tiger Brands has recorded the sector’s steepest share-price decline this year, even as CEO Tjaart Kruger continues to execute a turnaround strategy. The company has streamlined its portfolio, improved operational efficiency and exited non-core businesses.

Culverwell said Kruger and his management team had implemented changes that “arguably should have been undertaken under previous management teams”, with the benefits becoming increasingly visible in Tiger’s operating performance and competitive position.

Easy cost-cutting already achieved

However, he believes much of the easy cost-cutting has already been achieved. “The recent rally pushed the share into relatively expensive territory. That premium valuation could have been sustained if earnings continued compounding at double-digit rates, but the near-term growth outlook has become less straightforward,” he said.

Shai argued that investors should distinguish between Tiger’s share-price performance and total shareholder returns. Although the share price has fallen by about 25% this year, interim, final and special dividends have reduced the decline in total shareholder returns to about 15%.

The recent rally pushed the share into relatively expensive territory. That premium valuation could have been sustained if earnings continued compounding at double-digit rates, but the near-term growth outlook has become less straightforward

He said the recent weakness reflected profit-taking after Tiger delivered more than 100% total shareholder returns during Kruger’s tenure, rather than a loss of confidence in the turnaround.

AVI, meanwhile, is grappling with growing pressure from price-sensitive consumers. The owner of brands such as Five Roses, Bakers and I&J has historically commanded a premium valuation because of its strong brands, healthy margins and reliable cash generation.

That premium has come under pressure this year.

Culverwell said AVI’s strategy of protecting margins through price increases has become more difficult as consumers increasingly switch to cheaper alternatives. “The South African consumer has increasingly struggled to absorb further price increases,” he said.

Lower-priced competitors have gained market share in beverages and snacks, putting pressure on several of AVI’s key brands.

“The combination of elevated pricing and intensifying competition has resulted in market-share pressure across a number of AVI’s brands. That is important because market share is considerably easier to lose than it is to regain,” he said.

In its latest trading update, AVI reported revenue growth of just 1.4% for the year to June. A stronger first half was offset by weaker demand later in the year as higher fuel prices, elevated interest rates and rising competition squeezed household spending.

Shai said AVI remains a high-quality business but acknowledged that consumers are under significant financial strain. He said the company has invested in redesigning products and pack sizes to keep brands affordable without compromising quality.

RCL Foods — producer of Ouma Rusks, Selati sugar and Nola mayonnaise — faces a different challenge. The company recently warned that headline earnings would decline because of lower global sugar prices, a stronger rand and write-offs linked to its pet food business.

Following the unbundling of Rainbow Chicken, the remaining portfolio leaves investors with greater exposure to commodity-driven earnings swings, Culverwell said.

He noted that earnings were increasingly influenced by global sugar prices, exchange rates and agricultural conditions, factors largely beyond management’s control. That makes forecasting earnings considerably more difficult than for other food producers.

Shai said RCL has taken steps to reduce volatility through portfolio restructuring, but sugar remains vulnerable to fluctuating global prices and competition from imported products. He said the proposed changes to South Africa’s sugar tariff formula could provide greater stability for the industry over time.

Looking ahead, Shai expects margin pressure to persist in parts of the sector as consumers struggle to absorb further price increases. However, he said the country’s major food producers remain relatively well positioned to navigate the environment.

Business Times

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