Tiger Brands Limited (TBS), South Africa’s largest food company, will write off about half of its investment in Dangote Flour Mills Plc less than two years after buying a majority stake in the Nigeria-based producer.
Tiger, which makes Jungle Oats and All Gold tomato sauce, will impair Dangote Flour’s value by 849 million rand ($82 million) because of “underperformance” and “excess milling capacity that continues to increase in the Nigerian flour market,” Bloomberg quoted the Johannesburg-based company to have said Thursday.
The company bought a 63.5 percent stake Dangote Flour Mills from Dangote Industries Limited in September 2012 for about $190 million, its third purchase in Nigeria. Tiger targeted acquisitions in Africa’s largest economy as it saw limited opportunities in its home market.
The food producer sees earnings per share for the six months ended March 31 falling as much as 55 percent from a year earlier because of the write-off, it said in a statement.
Excluding the impairment, profit from continuing operations will improve 6 per cent to 10 per cent, Tiger said.
Tiger rose 3.9 per cent, the most since May 31, to 287.67 rand by the close in Johannesburg.
This article first appeared in Thisday
Could this be the first of many? Dangote Flour Mills have been posting losses since 2011 and currently has negative retained earnings of over N4billion. Tiger Brand’s acquisition of the was also meant to help turn around it’s fortunes. So this write off was perhaps inevitable.
Dangote Flour Mills currently trades at about N8 and posted a year high of N10.69. Will be hard to bet against this stock hitting N20 in the next two years.