With its first 'half-year' since listing now completed, Inghams Group Ltd (ASX: ING) shareholders will soon get the opportunity to see the company's progress in a few short weeks, when the half-year results come out in February.
Given that the value of shares hasn't really budged since listing, and that the upcoming interim results will reflect mostly the company's ownership under TPG, I still think investors are better off avoiding the company.
NZ competitor TEGEL GRP FPO NZX (ASX: TGH) – Tegel – also raised some concerns last month when it released its quarterly report, showing an increase in market share at the cost of lower prices per kilogram. This type of market share grab could prove destructive for both companies, with Inghams potentially losing market share in NZ, and Tegel possibly taking a meaningful hit to its profit margins as a result of the lower prices. Inghams' profits could come under fire if it is forced to cut prices to compete.
As the incumbent, Inghams likely has a scale advantage over competitor Tegel, and possibly a product advantage as well in terms of processing ('value-adding') facilities. Tegel, however, doesn't have a lot to lose by having a crack at expanding into Australia, and recent developments have reportedly made it easier for the company to export products here. Investors also shouldn't forget the potential for pressure from the big supermarkets, who are ultimately Inghams' and Tegel's biggest customers.
There are several key things I will be looking for in Inghams' upcoming results, and all of them concern the group's competitive position and margins. Based on what I've seen recently however, I still think investors should avoid Inghams entirely.
