We recently researched Inghams Group (ASX:ING) in The Dynamic Investor to assess its attractiveness as an investment. ING is executing well on several fronts, including recovering lost Woolworths volume via new contracts, improving volume growth and passing through price increases.

Since our report, the shares have continued to retrace. Accordingly, we consider whether this presents an opportunity. Or is the risk-reward balance still unfavourable?

About Inghams Group

Inghams Group is the largest vertically-integrated poultry producer across Australia and NZ, with around 40% market share in both countries. The Company also operates a stockfeed business, which holds strong market positions in the Australian stockfeed and NZ dairy feed markets. The major end markets include the major retailers, Quick Service Restaurant (QSR) operators, food service distributors and wholesalers.

Around 86% of earnings are generated in Australia, with the remainder generated from NZ.

Key Fundamental Drivers

Volume Growth Continues to Improve

For the six months to 31 December 2024 (1H25), ING report poultry volume growth of -2.7% (Australia -4.1% and NZ +5.0%). The decline was driven by a shift in channel mix to retail, and a reduction in QSR and out-of-home channels driven by cost-of-living pressures.

The Company has provided guidance for volume growth in FY25 to be between -1% to -3%. This guidance reflects the renewal of the Woolworths supply agreement, timing/size of new contract wins and persistent cost pressure. At the time of the interim results release in February, ING noted that it had secured new business in QSR and Retail offsetting ~75% of Woolworths volume reductions; hence the guidance for a decline in volumes for FY25.

To date, group volume growth is within the guided range. In a recent trading update, ING noted that it has now covered >92% of the lost Woolworths volumes. The strong progress in this regard reflects two factors:

i. ING has diversified its customer base and has no material contract expiries over the medium term.
ii. The Company has engaged with all new QSR operators entering/growing in the Australian market and has several good options in the pipeline as a result.

Ability to Achieve Higher Prices Despite Lower Input Costs

Feed costs (ING’s largest input cost) have moderated from the peak in 4Q23. ING will continue to see the benefit of lower grain prices in the 2H25 and into FY26. There is another factor protecting margin – more recently, ING has been able to pass through price increases to protect margins.

Group core poultry Net Selling Prices (NSP) for the first nine months of FY25 increased 1.2% compared to the prior corresponding period. This is an improvement from the +1.0% growth reported for 1H25.

The progress on pricing in 3Q25 is impressive from the viewpoint that:

• The new Woolworths contract is likely at better pricing,
• ING is maintaining operational price discipline across the group (i.e. not discounting to win volume) and
• Industry conditions at present remain highly rational. To this end, ING has remained rational on pricing, by taking volume out of wholesale and lifting the NSP per kg. Further, despite disruptions in the wholesale channel, ING has not seen any material change from the “normal” competitive environment. While there was more product in the market as it continues to recover from COVID, management has previously noted that pricing on tendering has remained rational.

Gearing Expected to Moderate

After partially using debt to settle an acquisition, gearing (on a net debt to EBITDA basis) rose from 1.5x as at 30 June 2024 to 1.8x as at 31 December 2024. The current gearing level is at the upper end of the target gearing range of 1-2x. Gearing is expected to progressively decline by FY25 and further in FY26, given that CAPEX requirements are moderating.

Fundamental View

The shares are currently trading on a 1-year forward P/E multiple of ~12x, below its long-term average of 13x. Accordingly, we consider that the risk-reward balance is unfavourable, especially given that FY26 is a transition year – where volume growth is expected to recover towards more normal levels (~2.5%) and margin expansion would be needed to justify a further re-rating in the shares.

Notwithstanding progress on the above-mentioned factors, the current multiple is also unappealing in the context of an EPS growth profile of ~2.5% over FY25-27 on a CAGR basis.

Charting View

ING has had a good run over the past few months or so and it is now approaching a major resistance level near $3.95. At the moment it appears to be consolidating under this line. If it can break above this line, then it should take a run up towards $4.40. Otherwise a break under $3.72 could see it dip back towards $3.40. That would provide a cheaper entry point. For the short-term at least, we still see it drifting sideways in a consolidation.

 

Michael Gable is managing director of Fairmont Equities.

 

CLICK HERE to read our Testimonials.

Current share prices available here.

You can learn more about technical analysis in this article.

 An 8-week FREE TRIAL to The Dynamic Investor can be found HERE.

Would you like us to call you when we have a recommendation? Check out our services.

Disclaimer: The information in this article is general advice only. Read our full disclaimer HERE.

Like this article? Share it now on Facebook and X!