Magic Markets #146: McCormick and SA Food Stocks

In Episode 146, Magic Markets digs into the food producer industry. This hasn’t been a great place to put your money during this period of heightened inflation, as consumer pressures tend to flow up through the value chain. We are celebrating 100 research reports and podcasts in Magic Markets Premium. Use the coupon MAGIC100EPS on checkout for an annual Magic Markets Premium subscription and save R100. This means you’ll pay just R899 for 12 months – or under R75 per month! As usual, we lean on our research in Magic Markets Premium for the global choice in this show, with Moe covering McCormick (20% market share in the spices and seasoning market in North America). The Finance Ghost chose a selection of South African food producers to talk about, indicating the pressures in the industry. Specifically, the hosts talked about: The severe inflationary pressures in food (including in staples) and the impact this has on consumers. The double top in McCormick that seems to be coming into play, with deteriorating fundamentals (specifically in margins and resultant pressure on profits) adding to the bear case. A look at whether our original pick of PepsiCo vs. McCormick was the right call on a relative and absolute basis. The substantial drop in sales in Asia Pacific at McCormick, a good example of how geographical diversification doesn’t always work out well. The usefulness of blue Dorito’s as an index for all bad calorie decisions (!) The reason why none of the South African listed food producers have “chicken” or “poultry” in their names, with a discussion on how the law of small numbers can explain significant volatility in profits and why this industry is facing such headwinds. AVI has a great example of how a good company doesn’t always translate to an enjoyable share price performance, particularly where valuation multiples unwind. Overall bearishness on the sector in South Africa, specifically with reference to trends in private label products at retailers and on-demand shopping. This episode of Magic Markets is brought to you by B2IT, data and process automation specialists. The company makes robots so that people don’t have to be robots. If you hate it, automate it with B2IT by visiting the website at this link.