More to the point, Zambeef's rating is down to about 12 times earnings, assuming a limited hit to profits for the year ended September caused by the contaminated beef and, more importantly, selling surplus wheat at lower-than-expected prices. And that rating makes a stark and inviting contrast with shares in similar consumer companies that are listed on Africa's stock markets and other exchanges in the developing world.
For example, on Nigeria's Lagos stock exchange there are locally-listed subsidiaries of developed-world giants. Shares in Nestlé Nigeria trade on 19 times earnings; in GlaxoSmithKline Consumer Nigeria the rating is 18 times; in Guinness Nigeria it is 29 times; and in Unilever Nigeria it is 43 times. Further afield, shares in Nestlé's Sri Lankan subsidiary trade on 30 times earnings and in Hindustan Unilever the rating is 39 times.
True, these subsidiaries have a pedigree that Zambeef can't match. For example, Unilever (ULVR) - via its Brooke Bond subsidiary - traces its links to India back to 1900. More relevant, Hindustan Lever was founded in 1931 and got its listing on the Bombay Stock Exchange in 1956. Guinness - now owned by Diageo (DGE) - has been brewed in Nigeria since 1963 and the Nigerian subsidiary was listed in the Lagos exchange in 1965. By contrast, Zambeef was founded by its chief executive, Francis Grogan, in 1994, got its listing on Zambia's Lusaka exchange in 2003 and a quotation on London's Alternative Investment Market in 2011.
In addition to being so deeply embedded into the fabric of the places where they operate, these mini Unilevers, Nestlés and whatever get a turbo charge to their rating by having such strong links to the bluest of the developed world's blue-chips. Currently that even gets a special booster because the blue-chips are sought out as safe havens in times of global turmoil. Yet the presumption of global recovery would undermine that particular support. Meanwhile, it could be eroded by what's happening to GlaxoSmithKline (GSK) in China, where the pharma giant is being investigated for allegedly bribing customers. At least it's easy to frame the thought that, if Glaxo's Chinese operations can be dragged into a corruption scandal, then why should any part-owned subsidiaries of blue-chips be better at resisting the endemic graft that afflicts the developing world? That's code for saying 'they are all at it', which, almost by definition, would include Zambeef; except, of course, Zambeef's shares don't have the exalted rating to lose.
Being takeover targets is the final factor boosting the rating of the mini blue-chips. In India, Unilever has just spent £2.1bn increasing its holding in its subsidiary from 52 per cent to 67 per cent and GSK spent £568m raising its stake in its consumer healthcare business to 73 per cent. GSK also wanted to raise its holding in its Nigerian consumer arm to 80 per cent. However, that scheme has been withdrawn partly because Glaxo's offer was too mean, but also because it looked badly thought out - GSK wants to raise its holding in a subsidiary whose key role is to distribute brands such as Lucozade and Ribena, while simultaneously it wants to sell its global interests in those brands - confusing or what?
No confusion with Zambeef, however. Unlike the listed subsidiaries of blue-chips - where there is only one predator that can't buy all the shares anyway - Zambeef can be taken over lock, stock and barrel by anyone. The directors control just 12 per cent of the equity and 'significant' shareholders - assorted emerging market funds - another 38 per cent.
True, Zambeef has not yet managed to turn growth into consistent profits. This year cash profits - what's labelled 'Ebitda' - will probably be little changed from the $16.2m that Zambeef generated in 2007-08. Still, in that period the group has almost tripled revenues in local currency (and almost doubled it in dollars to $255m). And the company offers an ideal exposure to the fast-growing middle classes of Zambia, but also of Nigeria - sub-Saharan Africa's second-biggest economy - and Ghana.
Its vertically-integrated model - companies have to do things for themselves in the developing world - process meat, chickens and grain from the field to the shop counter. This is a capital-hungry approach. Zambeef has twice had to raise equity in recent years and, at the end of March, its ratio of debt to equity was up to 83 per cent (having been 41 per cent just 18 months earlier). That means existing shareholders could be diluted, but it also raises the chances of a predator coming along.
Put it this way, Zambeef isn't mollycoddled by a rich parent - as are those blue-chip subsidiaries - but it could easily attract a sugar daddy. Yet its shares trade on a rating so drab that it almost invites them to be put into a fund like the old Bearbull Speculative Portfolio.
