Inghams Group Ltd
(ASX: ING) shares fell as much as 7.9% to $4.08 today. By way of comparison, the S&P/ASX200
(ASX: XJO) fell as much as 0.8% to 6234.
Ingham’s is the well know poultry producer and listed on the ASX in November 2016. The business was founded as a family business in 1918 by Walter Ingham in Liverpool, New South Wales.
After Walters death, sons Bob and Jack expanded the business to become the largest integrated poultry producer across Australia and New Zealand.
Why the fall in share price?
Inghams is currently undertaking capital management in the form of a share buyback, which would generally support a share price.
The damage to today’s share price is likely related to the news that Ingham’s gluten-free chicken schnitzels have been recalled from sale in Victoria amid concerns they contain gluten.
Supermarket owner Woolworths Group Ltd (ASX: WOW) were recalling the product over fears that if eaten, the schnitzels might cause an allergic reaction.
Buy, Hold or Sell
For those that are interested in the long term potential of the Ingham’s business, today’s blip could provide an opportunity to pick up shares on the cheap, which currently trade at a Price-Earnings ratio of 12x.
Personally, I’m not that keen on the business as an investment. Although they have a dominant market position, the category generally grows at GDP, plus or minus their gain or loss in market share.
There is a long term thematic of increasing poultry consumption which provides tailwinds. However, there’s the issue of rising feed costs for Ingham’s, one of their major input costs.
The biggest risk that I see ahead is that in mid-2021, Ingham’s have to renew their deal with Woolworths, which account for 40% of their sales.
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Disclosure: David does not own shares of Inghams or Woolworths.
