Costly Reformulations And Recalls Will Drag Performance

AN
AnalystLowTarget
AnalystLowTarget
Not Invested
Consensus Narrative from 3 Analysts
Published
09 Jul 25
Updated
24 Jul 25
AnalystLowTarget's Fair Value
R253.00
19.4% overvalued intrinsic discount
24 Jul
R302.14
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1Y
38.5%
7D
0.4%

Author's Valuation

R253.0

19.4% overvalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Shifting consumer preferences and regulatory demands are pressuring the company's product mix, leading to increased costs and potential market share erosion.
  • Operational setbacks, local market dependence, and fierce competition threaten profitability, stability, and growth prospects.
  • Portfolio optimization, supply chain modernization, and innovation in health-focused products are driving efficiency, stronger margins, and resilience in revenue and market share for Tiger Brands.

Catalysts

About Tiger Brands
    Engages in the manufacture and sale of fast-moving consumer goods in South Africa and internationally.
What are the underlying business or industry changes driving this perspective?
  • Accelerating consumer shifts toward healthier, organic, and less processed foods threaten the core of Tiger Brands' product portfolio, forcing costly reformulation and risking the loss of market share, which is likely to constrain future revenue growth.
  • Heightened regulatory scrutiny and tightening food safety, labeling, and environmental standards are expected to significantly increase compliance expenses and elevate the risk of operational disruptions or fines, further eroding long-term net margins.
  • Persistent operational inefficiencies, ongoing product recalls, and lingering reputational damage from past food safety crises such as listeriosis expose the company to recurring litigation and recall costs, undermining sustainable improvements in earnings.
  • Heavy concentration of sales within South Africa exposes Tiger Brands to prolonged local economic weakness, rand depreciation, and political instability, leading to elevated revenue and earnings volatility and constraining international expansion opportunities.
  • Intensifying competition from both multinational FMCG giants and a proliferation of low-cost private labels in key segments such as maize and chocolate is likely to trigger price wars, compressing gross margins and limiting the company's ability to achieve consistent, high-return growth.

Tiger Brands Earnings and Revenue Growth

Tiger Brands Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Tiger Brands compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Tiger Brands's revenue will grow by 1.4% annually over the next 3 years.
  • The bearish analysts assume that profit margins will shrink from 10.4% today to 7.9% in 3 years time.
  • The bearish analysts expect earnings to reach ZAR 3.1 billion (and earnings per share of ZAR 19.81) by about July 2028, down from ZAR 4.0 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, up from 11.8x today. This future PE is greater than the current PE for the ZA Food industry at 7.8x.
  • Analysts expect the number of shares outstanding to decline by 0.76% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 16.45%, as per the Simply Wall St company report.

Tiger Brands Future Earnings Per Share Growth

Tiger Brands Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Tiger Brands is seeing improved operating margins and strong returns on invested capital driven by ongoing portfolio optimization, streamlined SKUs, divestiture of non-core assets, and accelerated cost leadership initiatives, which support enhanced net margins and sustainable earnings growth.
  • The adoption of advanced logistics, manufacturing automation, and supply chain digitalization-including the Mega DCs and real-time route-planning-has already delivered substantial cost reductions, greater efficiency, and improved product quality, positioning Tiger Brands to expand operating margins and cash flow yields over the long run.
  • Substantial investment in health and nutrition initiatives, product innovation (including plant-based and fortified offerings), and strategic focus on snackification is enabling Tiger Brands to tap into secular consumer trends toward health and convenience, supporting resilience in revenue growth and premiumization opportunities.
  • The company is expanding its general trade and export presence using channel-specific strategies and deepening brand equity in both retail and informal markets, supporting gradual volume recovery, better price realization, and incremental market share gains, especially as African urbanization and middle-class growth drive secular demand.
  • Strong cash generation and disciplined capital allocation have enabled both elevated shareholder returns (special dividends and buybacks) and significant reinvestment in manufacturing and supply chain infrastructure, laying a foundation for improved long-term earnings and free cash flow, which may counteract potential share price weakness.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Tiger Brands is ZAR253.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tiger Brands's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  • However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR365.0, and the most bearish reporting a price target of just ZAR253.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ZAR39.7 billion, earnings will come to ZAR3.1 billion, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 16.4%.
  • Given the current share price of ZAR301.15, the bearish analyst price target of ZAR253.0 is 19.0% lower.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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