Innscor revenue projected to top $345 million

FINANCIAL analysts Renaissance Capital have projected Innscor Africa Limited's revenue to increase by 8 percent to US$345 million in the first six months of its financial period to December 31, 2012.

"We expect that the group will report consolidated revenue of US$345 million (more than 8 percent year on year)," Renaissance said.

Assuming lower finance costs and higher equity accounted earnings, adjusted earnings are forecast to increase 14 percent year on year to US$20 million, on Renaissance projected interim bottom line.

Renaissance contends that earnings before interest tax depreciation and amortisation would be flat on a year-on-year basis.

"Our forecasts suggest EBITDA margins may be slightly weaker year on year. We think that lower margins for the DGA division and Colcom could offset margin gains by other businesses," Renaissance said.

Competition and weak pricing is seen impairing Distribution Group Africa's margins and negative product mix weakening Colcom margins. Innscor is forecast to report flat EBITDA of US$38 million.

The analysts expect a slowdown in revenue growth to 8 percent amid expectation of mixed performance across the group's portfolio for in the first quarter of the conglomerate's financial year.

Renaissance said they noted that the first quarter of 2013 revenue growth slowed to 7 percent year on year (according to management).

Given the more challenging macro environment, the trend is expected to continue into the second quarter. The first quarter 2013 trade update indicated good volume growth at Colcom, however, Renaissance noted that this was driven by low-value products.

"We think the fast foods businesses will demonstrate moderate growth, driven by new outlet openings and refurbishments. We think the bread business will remain the star performer of the group, sustaining strong growth momentum with ongoing capacity additions.

Renaissance thinks EBITDA will be flat year on year and forecasts that EBITDA margins may be slightly weaker for the full year to June 2013.

Analysts believe that lower margins for the DGA division and Colcom could offset margin gains by other Innscor Africa businesses.

But lower finance costs and higher equity accounted earnings could boost the bottom line. Expectation is that Innscor will incur lower finance costs year on year, largely due to lower borrowing rates. Gearing is forecast to decline as the group's cash generation improves.

Equity accounted earnings from the group's associate businesses (which include National Foods and Irvine's) make a significant contribution to the bottom line.

We think that strong growth from National Foods, driven by higher utilisation and improved efficiencies, will boost this line item.

Forecast profit before tax of US$34 million is 1 percent lower than that reported for the first half of 2012. But if adjusted for the one-off gain in first half of 2012 (from the disposal of 12 percent of Natfoods), this gives 16 percent growth year on year on Renaissance estimates.

With US$20 million projected earnings (after minorities) which implies adjusted earnings growth of 14 percent year on year on Renaissance estimates.

Renaissance said that given the uncertain macro outlook, Innscor would maintain its payout policy of four times cover and declare an interim dividend of US0,9 cents.