Source: One Page News
Africa-focused, and new comer tuna investor, Lonrho, is rated too lowly for a business expected to show annual double digit growth, says broker Daniel Stewart.
Lonrho recently spun off its airlines arm into a new venture, Fastjet, run by the team that set up easyJet and is now focused on agribusiness; infrastructure; support services and hotels in Africa.
These core businesses now generate operating profits and Daniel Stewart expects Lonrho will start generating cash in 2012 and free cash flow in 2013, which is a healthy sign for dividends.
This will enhance Lonrho’s position as a way for investors to tap into the growing economies in Africa and the demand for quality sustainable products from the US consumer, said the broker.
It expects revenues to grow by 35% to £271 million (USD 435) in 2013, with 70% of revenues to be generated by the agribusiness.
These will be boosted by an exclusive five year deal for tuna caught off the coast of Mozambique.
“The tuna volumes will be exported to the premium sashimi markets in Japan and frozen steaks and loins to the US market where Lonrho already has a contract in place to supply other seafood products to the likes of Costco under the Kirkland brand,†said Daniel Stewart.
This contract alone could add $18m (c.£11m) to Lonrho’s Oceanfresh brand revenues line in 2013 and c.$36m (c.£22m) in 2014.
Daniel Stewart expects underlying earnings [EBITDA] to rise from £26.6 million in 2012 to £35.3 million in 2013, with pre-tax profits to reach £18.3 million from £10.1 million this year.
The separation of airline Fastjet also leaves the balance sheet looking healthier as a significant proportion of debt has been removed from Lonrho’s balance sheet, further de-risking the business.
Lonrho now has a 67.4% holding in Fastjet after a recent £5.5m placing by the airline.
According to Daniel Stewart, Lonrho trades on a 6.6 times its forecast for underlying earnings in 2013, which is undemanding for a business expected to deliver double digit profit growth year on year.
On a sum of the parts basis, Lonrho is worth 20.1p, the broker adds.