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Why Is Inghams Down 20% Today?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Inghams (ASX: ING) shares sold off sharply today, in-spite of being able to increase full year profits and sitting on a relatively unassuming PE multiple of 11.3. Inghams increased profits by a healthy 10.1% to $126m, and revenue rose by a more modest amount to $2.5bn. What investors didn’t like however, is the increase in expenses. Making matters worse, efforts to improve efficiency in the company’s vast, trans-national processing network str,uggled to deliver results in the face of high consumer demand. They also announced a dividend cut from 11.6c/ share a year ago to 10.5c/ share now. Given the IPO was heavily marketed to retail investors through Commsec, this is unlikely to go down well with shareholders.


Inghams Group - reports-1

Inghams is one of the leading suppliers of chicken in Australia (Credit: Inghams)

The most troublesome aspect of the results however was forward guidance management had for the market. While management believes that poultry demand will continue to grow, the market already forecasted this increase and it was largely in the price before today. The main cause for concern is the ongoing drought, which means processing costs are projected to continue rising and the unexpected cost increase we saw in this year’s results will continue. This highlights the risks of investing in agricultural stocks at high multiples; while it could be a profitable strategy, investors must be prepared for the prospect of a large multiple contraction if the weather and climate, two factors out of our direct control, make a turn for the worse.

Inghams focusses on chicken and turkey and is one of the largest companies operating in the Australian chicken market. The company expanded through a mix of organic and inorganic expansion and has been a generally well-managed growth story. It only recently listed on the ASX and has traded since 2016. This is one of the reasons why the company sold off so heavily – the market has limited experience trading shares in the business and could still be in a process of price discovery as investors monitor the cycle and come up with multiples that are appropriate for the business.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.


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