Tiger Brands has cut off funding to its Nigerian unit as the South African consumer goods maker launched a review of its investment in the loss-making pasta and flour maker, it said on Monday.
Tiger Brands has struggled to make a profit at Dangote Flour Mills (DFM) since paying nearly R2.87bn for a 65% stake in the firm three years ago as part of broader plan to expand elsewhere in Africa to offset slow growth at home.
But DFM is battling tough competition and weakening naira currency, forcing Tiger Brands to twice write down the value of the business by a total of R954m.
“Tiger Brands has decided not to provide further financial support with respect to its investment in Tiger Branded Consumer Goods of Nigeria,” the company said in a statement.
Shares in the Johannesburg-based company climbed 4% to R323.21 by 09:42 GMT, outpacing a slightly higher JSE Top-40 index.
One analyst said the move would enhance Tiger Brands’ earnings.
Meanwhile, shares in DFM fell 4.7% after its parent firm,Tiger Brands, cut off funding support to its struggling Nigerian unit.
DFM, which has lost 44.4% of its value so far this year, fell to 2.41 naira ($0.0121) at 10:44 GMT.
“In the longer term, Nigeria will probably be a good place to be if you have scale, but Tiger Brands would probably have to refinance Dangote and probably take it a step forward by, for example, going into baking,” said Avior Capital Markets’ analyst Jiten Bechoo in Cape Town.
Tiger Brands’ other businesses in Nigeria, Deli Foods and UAC Foods, will not be affected by the review. Tiger Brands competes with Nestle Nigeria in Africa’s biggest economy.
Source : SunOnline