In an era where cost of living pressures are mounting, Inghams Group Limited (ASX: ING) stands out as a beacon of strength and resilience. Originating as a family business in 1918, Inghams has grown into the leading integrated poultry producer in Australia and New Zealand. Despite the economic challenges posed by rising feed and fuel costs, plus consumers facing tightening budgets, Inghams proves its worth is far from chicken feed.

In 1918, Walter Ingham established Ingham’s Group Limited as a family business in Liverpool, New South Wales.

Following Walter’s passing in 1953, his sons, Bob and Jack Ingham, propelled the company to its current status as the leading integrated poultry producer in Australia and New Zealand. The company’s expansion, initiated in the 1960s, involved strategic organic growth and acquisitions. The diversification of Ingham’s led it to include the production of both Turkey and stockfeed while also enhancing its processing capabilities to meet evolving consumer preferences for value-added poultry products.

At present, Ingham employs over 8,000 people, sells more than 440 million kilos of chicken each year, and produces over 320 million eggs and 1.2 million tonnes of grain each year.

The company serves as a key supplier to major retailers, quick service restaurant (QSR) operators, food service distributors, and wholesalers. Its mission is simple to provide deliciously good food in the best way by providing the best quality products and services to their customers and consumers.

Ingham’s vision is to be Australia and New Zealand’s first choice for poultry.

The company listed on the ASX in November of 2016 raising a touch under $600 million. It’s currently trading at close to 52-week highs with the business valued at over $1.4 billion following an impressive run in the share price.

Ingham’s Australian poultry division is the main driver of revenue with $2.4 billion recorded in FY23.

This makes up 80% of the group’s revenue with two customers generating in excess of 10% of total revenue. Outside of poultry, feed represents a much smaller 7% of total group revenue.

Inghams has a number of high profile customers that the business has built long standing relationships with. This includes 40 year plus partnerships with brands such as Woolworths, KFC and McDonalds.

In 2023 Ingham’s grew revenue by 12.2% to $3.04 billion driven by improved net selling prices in poultry (12.2%) and external feed (26.2%).

These price increases aimed to recover ongoing escalations in feed and fuel commodities and address broader inflationary pressures. Cost of sales saw a 10.1% increase, largely influenced by higher input prices for internal feed ($122.6 million) and other costs, including fuel, freight, ingredients, cooking oil, and repairs and maintenance, all surpassing general inflation rates.

Earnings per share jumped 72% to 16.2 cents per share on the back of an improved gross margin and controlled costs.

There was a slight move in the current asset mix with an increase in biological assets as a result of cycling higher feed costs; and an increase in trade and other receivables of $46.4 million relating to the impact of higher prices flowing through trade debtors.

Ingham’s cash position is strong with $136 million in cash on hand at the end of 30 June 2023.

The business generated operating cash flows of $359 million for 2023 up 5% from the prior year. Total cash inflows for 2023 were $4.5 million up from an outflow of $26 million in 2022 following a decrease in financing activities and in particular the timing of the payment of dividends.

Inghams increased its interim dividend and as a result the full-year dividend declared has increased from 7.0 cents per share to 14.5 cents per share, a 107% increase providing investors with a dividend yield of 3.7% and a grossed up yield of 5.3%.

At the end of October Ingham provided the market with updated expectations for the first half of 2024.

The company’s operational performance has experienced a strong start to the half driven by advancements in farming and processing metrics, heightened demand for poultry, positive developments in wholesale pricing, and an accelerated recovery in New Zealand.

The continued improvement hinges on maintaining current wholesale pricing and operational improvements. Seasonality and inflation factors are expected to impact the second half with the cost of labour, feed, fuel, electricity and CO2 expected to provide a lower contribution.

The growing demand for chicken is strong.

The Australian consumer is expected to spend a greater amount on chicken driven by trends in convenience and product innovation which are responding to consumer needs. Retailers are adding more space for poultry and items are becoming more prominent on permanent menus.

Post the strong trading update at the end of October ING is no longer a holding in the TAMIM portfolios. Based on trailing FY23 numbers Ingham’s is currently valued at 24 times earnings. We see Ingham’s as an attractive proposition positioned well for increased consumer demand. We continue to look for a re-entry into the stock given its decent dividend yield and the fact that it is a well placed business in a defensive consumer industry.