Inghams reported 1H23 sales up 9% and EBITDA down 16%. The contrast between sales and earnings reflects higher prices, more than offset by higher costs. The magnitude of the price rises is significant and will be an even greater contribution to sales in 2H23e on our estimates.

Inghams provided a further trading update about its second-half of FY22e. The results will be “seriously” impacted by Omicron, floods and input cost pressures. We forecast FY22e EBITDA of $135 million (pre AASB-16). 2H22e EBITDA is down 68%. While FY22e is tough, there should be a rebound in FY23e as earnings normalise. However, our EBITDA does not recover to pre COVID-19 levels because higher transport and feed costs could weigh on earnings for longer.

We initiate coverage of Inghams Group, the largest poultry company across Australia/NZ.  The drivers of Inghams earnings growth are continued solid demand growth for poultry, a favourable sales mix and reduced feed costs. The company can also make acquisitions and may expand into pet food supply or meal kits. We see an upside skew in margins with a better sales mix and rational pricing in the poultry market for both Australia and New Zealand.