Maximizing Profits: Analyzing the Growth of the Chicken Stock Market

Empowered by Portuguese insights and a looming Danish comeback, we identified an interesting buying opportunity in Scandi Standard when we analyzed the company last summer. Since then, much has been moving in the right direction, and loyal shareholders have been part of the winning team on the stock market.

The stock price is up by 45% so far this year and nearly 70% if we look back a year.

An important milestone in the ownership list occurred last spring when Öresund, with its 15.29%, was surpassed for the first time by the mysterious Portuguese owner Grupo Lusiaves. The Portuguese, who have a representative on the board, have since continued to acquire Scandi shares, and after their latest purchase last Friday, their ownership stake now amounts to just under 16.9%.

Further down the ownership list, we also find Lantmännen with 10.57% and the Qviberg spouses with just over 5% each, meaning there are several owners with at least 10% – a so-called corner that can be used to block or at least complicate a takeover.

Exact plans of Grupo Lusiaves for their ownership, influence, and potential interest in bringing the entire company into their broader food conglomerate are unclear. However, the regular stock purchases and the inherent potential if a bid comes one day have contributed to the strength of the stock recently.

More importantly, the stock’s rise is due to the improved business operations. The problems in Denmark that have affected profitability have gradually eased, although the latest report showed that Denmark continues to be a challenge.

Overall, the major trends are positive. Chicken is a protein with many advantages in the food aisle competition, and Scandi Standard is steadily increasing its profitability. The operating margin increased from 3.5 to 3.8% in the quarter, and the rising trend is also evident when profitability is measured in relation to the number of kilos of chicken sold.

For the full year 2023, the margin was also at 3.5%, and as the table below shows, analysts following the company believe it will reach 4% this year and then continue to gradually increase. Interestingly, the financial target set last year is a minimum operating margin of 6% – leaving room for positive surprises if the goals are achieved.

The strong share price performance has been accompanied by operational improvements, but not at the same pace, leading to a significant valuation increase.

Looking at the P/E ratio, it was at 11 for the next year when we recommended buying the stock in August last year, and now it stands at 15. For 2026, it falls to 13 if analysts’ forecasts come true.

While there is potential in a significantly higher margin target than what the stock market expects the company to deliver, it’s important to consider risks such as bird diseases, allegations of poor conditions in operations, and historical production disruptions that have led to setbacks.

When weighing the potential for surprising large profit increases and possible takeover bids against the risks and the higher valuation, we simply do not have the same buying urge as we did a year ago.

Analysis and Conclusion:

Scandi Standard’s stock has seen a remarkable 45% increase in value this year, driven by improved business operations and strategic investments by key shareholders like Grupo Lusiaves. The company’s growth projections and margin targets indicate a positive outlook for the future, but potential risks such as bird diseases and production disruptions need to be considered. While there is room for further growth, the current valuation may deter some investors from buying at this time.