Batanai Matsika
Looking at the broader milk production industry in Zimbabwe, operators have consistently emphasized the need to resuscitate national milk production. Some suggestions have included exploring JV arrangements with strategic investors to venture into greenfield milk production projects. Conversations with potential investors from countries such as New Zealand have also been explored. We note that milk production in Zimbabwe has dwindled. In the 1990s, farmers in Zimbabwe produced 260 million litres of milk per year versus the 70 million litres that is currently being produced. Dairibord Zimbabwe Holdings Limited’s milk intake share is the largest at 42%. There are 7 other milk processors in Zimbabwe including Dendairy taking in 33%, Pro-brands 6% and Kefalos 4.5%.
More recently, the government has granted Dairibord Dairibord to benefit from milk supply deal, a special dispensation allowing the company to import raw milk from Manica Province in Mozambique to increase production at its Chipinge plant.
The importation of milk from farmers in the neighbouring country is being facilitated under an initiative by Manicaland and Manica provinces to enhance cooperation between Zimbabwe and Mozambique at both the economic and political level. Dairibord has been proactive in terms of sourcing for raw milk supply. It has also been engaging South African investors that are considering producing milk in Zimbabwe.
Locally, it has been capacitating dairy farmers through its Milk Supply Development Unit (MSDU) with an objective of boosting herd growth and productivity at farm-level.
For Dairibord, improved milk intake will benefit the Liquid Milks category and also reduce dependence on imported milk powders, which are expensive and difficult to secure given the prevailing foreign currency shortages.
The demand of milk continues to outstrip supply and this represents a significant opportunity for milk processors in Zimbabwe.
Broadly speaking, there is also headroom for growth in milk consumption in Sub Saharan Africa (SSA) given that potential increase in disposable incomes.
The major risk is that foreign currency constraints are expected to continue and this presents significant risks on product supply and cost of inputs. Nonetheless, we continue to like the strong demand dynamics for milk in Zimbabwe (milk supply deficit of c60m litres) and we think Dairibord is set to benefit from any improvements in raw milk supply given its market positioning and unique brands such as Steri and Chimombe.
Generally, consumer companies such as Dairibord provide an avenue for investors to tap into a country’s economic growth given the defensive nature of consumer products (proteins).
The stock is trading on a historic PER of 38.9x which looks demanding. However, the various milk supply initiatives are set to boost performance and valuations should unwind.
Batanai Matsika is Head of Research – Akribos Research Service +263 78 358 474 batanai@akriboscapital.com
