Macro Intelligence: Inghams’ FY24 roller coaster- soaring profits, sinking shares

Deep dive into Inghams

In this week’s edition of IG Macro Intelligence, we take a deep dive into Inghams Group Limited (ASX: ING).

Winner winner

Financial Year 2024 (FY24) was the most successful year for poultry producer Inghams since listing on the ASX 200 in 2016. EBITDA rose 12.6% to $471.1 million, while underlying EBITDA increased 30.8% to $240.1 million.

Inghams' earinings report

Clucking good profits

Profit rose 68% during the year to $101.5 million, while revenue increased by 7.2% to $3.3 billion.

The result was boosted by a near 3% rise in group core poultry sales, while Inghams was also able to charge more during the period. The net selling price (NSP) for chicken rose by 5.4% in FY24 to $6.28 per kilogram.

However, total costs increased by 6.2%, driven by higher internal feed costs and increased costs of sales. These cost increases were due to higher volume, general inflation, and a shift from fixed contracts to performance-based contracts, though some of this was offset by better efficiency and improved operational performance.

Inghams declared a total fully franked annual dividend of $0.20 per share, up almost 38% from FY23.

Getting roasted

Inghams shares plunged following its latest financial result, as the company flagged a cautious start to FY25. The producer cited cost-of-living pressures and a change in its Woolworths contract as key challenges.

While Inghams will remain Woolworths’ number one poultry supplier, there will be a “phased reduction” in volume under their multi-year supply agreement. The company has guided the market that FY25 total core poultry volume could decline by between one and three percent.

Despite these concerns, CEO Andrew Reeves expressed confidence in the company’s ability to absorb the changes. He noted that Inghams has secured significant new business from other customers for FY25, which should help offset the impact of the Woolworths contract adjustments.

Inghams also continues to invest heavily in technology and automation, positioning the company for future growth. Reeves told ausbiz that he wasn’t overly concerned by the market’s reaction to the result, stating, “I’m much more optimistic about the future of the business than that share price would suggest.”

Ingahams share price chart

Shell-shocked investors

Analysts have downgraded their outlook for Inghams following its cautious FY25 guidance.

Multiple indicators show Inghams shares are in a long-term bearish trend. ASX Tradewatch data show the 200-day moving average is falling, suggesting demand for Inghams shares is low. In the shorter term, the 5-DMA is beneath both the 20 and 50-DMAs, which is a sign that investors see little opportunity in owning Inghams shares at this time.

Analysts' suggestion

Analysts weigh in

The average recommendation on Ingham’ stock is a HOLD, according to Refinitiv data. The average current target price is $3.53, representing a 12.4% gain from where Inghams shares were positioned at the start of September.

In response to Inghams’ FY results, several analysts adjusted their price targets:

• Macquarie: cut its price target (PT) by 17% to $3.50
• Bell Potter: Slashed its target price by 24% to $3.30 per share and downgraded its rating to HOLD from BUY.
• Morgans: Reduced its PT by 14% to $3.66.
• UBS: Lowered its PT to $3.35, an 18% decrease from its prior target of $4.10.

UBS has maintained its neutral rating on the stock, noting that Inghams’ efforts to replace the lost volumes from its changed Woolworths contract could provide some comfort for investors. However, UBS also highlighted that this situation represents a significant shift in industry dynamics, moving away from what has historically been viewed as a favourable duopoly.

FNArena sentiment indicator

Is there a chicken comeback?

Meanwhile, Stuart Roberts from Stocks Down Under reckons the recent sell-off provides a good entry point, so long as you sell out at the top.

He told ausbiz you could see a “beautiful turnaround” in Inghams, noting that the share price has moved in a consistent range since its IPO. “You buy it when it gets to about $2.60 and you sell it when it gets back up to $4.16,” Roberts told ausbiz.