Rainbow Chicken arrives on the JSE

Rainbow Chicken was listed on the Johannesburg Stock Exchange’s (JSE) main board as a primary listing, trading under the share code “RBO” on 26 June 2024.

Rainbow Chicken, originally founded in 1960 as a small family-owned business, has become one of South Africa’s largest poultry providers in the past sixty years.

Today, the company is a fully integrated broiler producer and functions at all stages of chicken production, from farm to fork.

The Rainbow Group’s fully integrated business model incorporates all stages of chicken production.

It controls and operates 165 farms, 1,288 houses, eight hatcheries, three primary processing plants, and two further processing plants dedicated to added-value chicken products.

It also has six animal feed mills and holds a 50% shareholding in a joint venture, Matzonox, which operates two waste-to-value plants.

Rainbow Chicken boasts a rich portfolio of heritage brands renowned for their strong customer affinity and continuous relevance in the market.

The company’s primary retail brands, Rainbow, Rainbow Simply Chicken, and Farmer Brown, cater to a wide customer base.

As South Africa’s second-largest feed company, Rainbow Chicken ensures feed delivery through its brands, Epol and Driehoek Feeds.

The JSE listing is part of Rainbow’s process of being unbundled by its parent company, consumer goods giant RCL Foods Limited.

The unbundling represents a new chapter for Rainbow Chicken, offering South African investors a new investment opportunity.

The unbundling will be implemented through the distribution of 890,296,405 ordinary shares at a ratio of 1 Rainbow Chicken share for every 1 RCL Foods share.

Rainbow Chicken will be listed under the “Food Products” classification of the JSE’s main board.

It brings the number of listed companies in the JSE to 282, with an overall market capitalisation of R18.8 trillion.

Rainbow Chicken valuation

Rainbow Chicken generated revenue of R13.5 billion in the 2023 financial year, an 18.3% improvement from the prior year.

The company achieved a compound annual growth rate (CAGR) of around 14.0% over the past three years.

Mergers and Acquisitions advisory specialist Joshua Viljoen said the company delivered earnings before interest, taxes, depreciation, and amortization (EBITDA) of R38.6 million in full-year 2023.

“Improved agricultural performance, cost control initiatives, and higher volumes are driving positive results,” he said.

Chantal Marx, head of investment research and content at FNB Wealth and Investments, said they value Rainbow Chicken at R2.54 per share or a market cap of R2.3 billion.

“There could be pressure on the share price the first few days as RCL shareholders sell the more cyclical Rainbow Chicken shares,” she said.

Daily Investor did its own market cap calculation for Rainbow Chicken, which aligns with FNB Wealth and Investments.

For this analysis, Daily Investor used three ratios – price-to-earnings (P/E), price-to-sales (P/S), and price-to-book (P/B).

We calculated the ratios for comparable companies, including Astral Foods, Quantum Foods, and its parent company, RCL Foods. These are all listed poultry companies on the JSE.

Astral Foods trades at a loss, while Quantum Foods has a P/E ratio of 1,370. Therefore, RCL Foods’ P/E ratio was used.

The average P/S ratio for these three companies was 0.36, and the average price-to-book value was 1.26 of equity.

Rainbow Chicken expects revenue of R14.4 billion, an equity book value of R711 million, and earnings of R100 million for the next full year.

Calculating an average market cap from these figures translates to a market cap of R2.33 billion for Rainbow Chicken.