September 27, 2004

By Samantha Enslin

Durban - The share price of Tiger Brands, the food and drug heavyweight, jumped to a new high last week after it announced the distribution of over 168 million shares in subsidiary food retailer Spar to its shareholders ahead of Spar's listing on October 18.

Tiger Brands' share gained 1.63 percent to R97.33, after reaching an intraday high of R98, on the news that shareholders would receive one Spar share for every Tiger Brands share held on October 22.

An analyst, who declined to be named, said: "Investors realise Spar could be worth more than originally thought."

Based on Tiger Brands' results for the six months to March, after the unbundling its headline earnings will fall 21 .3 percent to 330.4c a share and net asset value will shed 14.7 percent to R14.438.

Tiger Brands said last week this information was for illustrative purposes and "may not give a true picture of the future impact of the unbundling on Tiger Brands' financial position, net asset value or results of its operations".

Spar forecasted revenue for the year to September at R11.9 billion, profit from operations at R410 million and net profit at R286 million.

Spar said the recent drop in food inflation, which stands at about 2 percent a year, had dragged sales and profit growth.

"It is envisaged that low levels of inflation will continue in the short term to medium term, resulting in lower growth in revenues than those achieved in previous years when inflation contributed substantially to sales growth," Spar said.

The decision to unbundle Spar follows Tiger Brands' strategy of refocusing on its core activities of production, marketing and distribution of branded food and healthcare products. In the past six years it has sold non-core assets, making strategic acquisitions in food and healthcare.

Warwick Lucas, a senior investment analyst at Imara SP Reid, said: "The attraction in Tiger Brands is that it will now be a tighter business in which managerial decisions will have a greater impact."

Tiger Brands said: "The unbundling will allow investors to attribute appropriate individual share price ratings to Tiger Brands and Spar aligned to the industry-specific dynamics of the respective companies.

"It is anticipated this should unlock shareholder value by reducing the discount at which Tiger Brands shares trade relative to the value of its underlying businesses."

Tiger Brands' products include All Gold tomato sauce and Jungle Oats, healthcare products Syndol and Corenza C, and baby products Elizabeth Anne's and Purity. It also owns Sea Harvest and Oceana.

Spar focuses on the supply and distribution of goods and services to independently owned grocery outlets Spar, Tops liquor stores and Build It.

"As an independent and separately listed company, Spar will be better positioned to capitalise on its core competencies," Tiger Brands said.

An analyst said: "Spar is a high-quality company, with a strong management team and a good business model." He expects the stock to trade between Pick 'n Pay and Shoprite.

Lucas said: "While Spar is not a retailer like Pick 'n Pay or Shoprite, alongside which it will list, its brand profile is inevitably going to draw the comparisons, even if it is a cross between a franchisor and a wholesaler."

Growth for Spar would be leveraged by increasing the number of its Spar stores, which now number more than 750, as well as organic growth of existing stores by increasing their size and offering.

Upping the loyalty of Spar retailers and increasing the range of products and services available would also aid growth.