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Tegel shareholders express concern at escrow shares and weaker share price

Tegel shareholders say they're concerned about the potential impact of escrow shares on the market and a drop in the poultry company's share price.

Fiona Rotherham
Wed, 19 Oct 2016

Tegel shareholders say they're concerned about the potential impact of escrow shares on the market and a drop in the poultry company's share price which is trading 6c below the $1.55 price it sold at in its May initial public offering.

Affinity Partners, which retained a 45% share in Tegel after the float, and a number of directors and senior management holding just under 1%, have just over 163 million shares in escrow.

Tegel chairman James Ogden told shareholders at the company's annual meeting in Auckland today that the escrow details were fully disclosed in the product disclosure statement (PDS) ahead of the float.

The first trigger date is in mid-December when Tegel announces its first-half results for the 2017 financial year. Affinity can sell half its shares provided the volume-weighted average price of the shares in the following ten days after the results announcement is at least 20% above the IPO price – or $1.86. All the escrowed shares can be sold without restriction when Tegel's full-year results are announced in June 2017.

Mr Ogden said Tegel's weaker share price reflected a drop in the overall NZX 50 Index of 7.9% since early September. "So Tegel is not the only issue," he said. The shares last traded at $1.49 and have dropped 10% this year.

Affinity chairman and former Tegel chairman Tang Kok Yew, who along with Affinity's other director Brett Sutton was re-elected to the board, told shareholders the fund had been building a portfolio of food and beverage companies across Asia and aimed to make Tegel one of New Zealand's leading exporters.

Tegel shares were performing well after the May float, hitting a peak of $1.80 in mid-August, but have been mainly falling since, which some commentators have blamed on the upcoming November float on the ASX of Australia's largest chicken company, Ingham's Group, which is Tegel's largest competitor domestically. Ogden said it wasn't the board's place to comment on Ingham's float but said in response to a shareholder question about the likelihood of increased competition that "we compete in the supermarket every day and have been doing so for many years."

Weaker prices for fresh and frozen poultry in New Zealand are also thought to have contributed to the share price drop. Chief executive Phil Hand said the lower prices had continued longer than expected due to a chicken glut.

Tegel's export revenue passed the $100 million mark for the first time in the 2016 financial year and it's planning to start importing raw poultry into Australia by January. That follows it and the Ministry for Primary Industries negotiating changed market access conditions for export which previously required chicken products to be fully cooked.

Australia's poultry market is worth about A$7.1 billion and Tegel exported $A70 million worth across the Tasman last year, representing a 1% market share.

Mr Hand said he's expecting to significantly boost Australian exports this financial year and the improved market access could knock a year off its five-year target to double export revenue.

The company already exports to Australia, the Pacific Islands, the Middle East, and Hong Kong and recently added the Philippines and Bahrain to the list. Mr Hand said export markets are restricted by where it can negotiate access to with China unlikely in the near future. It can take up to five years to negotiate access, he said.

Tegel can already export into Japan, a market it pulled out of three years ago after it struggled with distribution, the exchange rate, and to make a profitable margin. Mr Hand said it plans to give Japan another go in the 2018 financial year and talks are also under way to gain market access in South Korea.

Tegel is the dominant player in the New Zealand market, processing around 55 million chickens a year or half of the country's poultry, and Mr Hand said having a strong domestic market was central to having a strong export story.

In terms of the trading outlook for this financial year, Mr Hand said first-half sales to date were looking strong despite the soft pricing in the domestic market.

The company said it was on track to achieve its PDS forecast for the full year of $625 million in revenue, up 7.6% on 2016. The forecast will be updated at the release of the first-half results in mid-December when it also expects to announce its first dividend.

The dividend is also expected to be in line with PDS forecasts based on paying out about 65% of pro forma net profit after tax, which is forecast to be $43.4 million for the full 2017 financial year. The first-half dividend is likely to be fully imputed and paid in the third quarter.


Fiona Rotherham
Wed, 19 Oct 2016
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Tegel shareholders express concern at escrow shares and weaker share price