Inghams Group is our pick of results this week. Despite a challenging New Zealand market due to market oversupply and a weak wholesale market in Australia, ING's interim result beat expectations. Solid earnings growth (EBITDA +9.1% on pcp) reflected strong demand for poultry driven by consumer preference for healthier (leaner) white meat and efficiency (Project Accelerate) benefits which saw margins rise (EBITDA margin was 7.8% vs 7.4% the pcp). 1H17 EBITDA represented 50% of ING’s full year guidance. However the prospectus said that FY17 EBITDA would be weighted 45-48% in the 1H17 and 52-55% in the 2H17 due to the timing of Project Accelerate benefits. We therefore believe that full year guidance is conservative, with risk to the upside.
ING is on its way to transitioning from a family-run business to a modern, efficient FMCG business and is one of our key picks in the Ag/Food sector. Our positive view is based on ING being the market leader of a domestic protein growth story in an industry where there are clear barriers to entry, its scale gives it bargaining power with customers, Project Accelerate should underpin solid EPS growth and it has a well-respected management team. ING offers investors both yield and growth. Trading on an FY17F PE of 12.8x and an annualised dividend yield of 5.3% fully franked, we believe that ING is undervalued. The next catalyst for the stock is ASX300 and possibly ASX200 index inclusion with the March review.