Inghams Earnings: Poultry Price Increases Lift Profitability

We raise our fair value estimate for shares in Inghams ING by 6% to AUD 3.70 following the release of fiscal 2023 results. Underlying EBITDA lifted 14% on fiscal 2022 to AUD 434 million—about 2% above our forecast. Higher input costs have weighed on Inghams’ recent history. Feed prices remain elevated, albeit moderating from recent record highs, and fuel, freight, and ingredients have all increased ahead of general inflation. But commensurate price increases—which are notoriously slow to respond—are beginning to flow through after sharply lower margins in fiscal 2022. Inghams enjoyed higher prices across all channels, with core poultry net selling prices up about 13% in fiscal 2023. But poultry is a highly commoditised product, and Inghams remains a price taker, leading to our no-moat rating.

We expect further improvement in profitability in fiscal 2024 as lagged price increases continue to take effect. Indeed, there is pricing momentum into fiscal 2024. Average pricing increased quarter on quarter throughout fiscal 2023, with fourth-quarter 2023 average selling prices about 17% above the corresponding quarter in fiscal 2022. We also remain positive on the longer-term industry dynamics. Chicken meat is cheaper than competing proteins, as producers can convert feed into live weight at a rate that is about 1.5 times more efficient than pork and four times more efficient than beef. We forecast a five-year EPS CAGR of 12% for Inghams, underpinned by population growth and some per-capita increases in chicken consumption, combined with continued margin recovery.

The firm declared a better-than-expected final dividend of AUD 10 cents per share, bringing total fiscal 2023 dividends to AUD 14.5 cents per share, fully franked—near the top end of the firm’s target payout ratio. We expect dividends to continue to rise with increasing profitability, returning to the midpoint of the firm’s 60%-80% target payout ratio by fiscal 2025 without jeopardizing growth investment.