Colcom released a brilliant set of results, posting a profit of

1,34c per share and declaring an interim dividend of 0,44c

per share in the process. After increasing overall volumes by

42%, they increased their h/h sales by 34% to turn over

$20,9m. From pre-tax margins of 15%, they made a pre-tax

profit of $3,2m. Colcom incurred a tax of $798,209 and

posted $2,4m as attributable earnings (basic eps of 1,34c).

Their balance sheet improved from $25,1m to $28,6m with

NAV rising from $19,3m to $21,4m. They increased their

inventory levels by 74% as they accumulated cheap stock

feeds. However, this did not pull their cash flows too low as

they closed the period cash positive at $2,9m. This led them

to declare the interim dividend of 0,45c per share. CAPEX for

the period was $414,672 and short term borrowings stood at

$1,5m at an average cost of 12% p.a.

Operational Review

• Improved supply and quality of stock feed as well as

improved demand resulted in a 44% increase in pig

output, which led to higher throughput into the

processing factory to 700T/month for pork and 120T for

beef.

• Pie volumes also grew 40% as the division reached 100%

capacity as new equipment was installed in the half.

Margins were squeezed from 32% to 28% as they had to

do some overtime to operate at 100% capacity. This has

since been rectified as they are now operating normal

hours, still at 100% capacity.

• Associated meat Packers saw a 30% increase in volumes

to 120T.

Outlook

The group continues to look forward to positive growth as

local income levels improve. Their aim remains to maintain

their neo-monopoly status in the local pork industry.

To become any more efficient, they acknowledge their

need to invest in new technology and replace some aged

equipment. So far, they have invested $500k to new

software as well as mechanization of some operations

and should cut system leakages to the bottom line by 2%.

As the factory is 40 years old, there are so many changes

that will need to be implemented, but at this stage

demand does not prompt the need to take such steps.

Value and Recommendation

Assuming their H2 results mirror their H1 results, they

should turn over $41,9m ($2,1m higher than their prior

forecasts of $39m). at similar margins, they should make

an EBITDA of $7,2m and post earnings of $4,7m for the

year. This implies a forward PER of 9,4x. Applying the

average EV/EBITDA of 7,9x, we get a value of $56,7m

(35,7c per share). Considering they are declaring a

dividend at an hour where most businesses are still

struggling to survive, we maintain our BUY

recommendation on them.