Ingham’s earnings recovery is dependent on the path of feed costs and its ability to raise prices. There is a high degree of uncertainty on both parts but enough upside potential for us. We reduce our EBITDA forecasts by 4%-5% over the next two years given higher feed costs. However, price rises look like they are flowing through and any normalisation in commodity prices would lead to a meaningful profit margin rebound for the company.

Inghams had a difficult FY22 with EBITDA pre AASB-16 of $135 million, down 35%. The worst of its disruptions are likely in the past. However, both higher feed costs and increasing operating costs are likely to still weigh on earnings in 1H23e. We expect 1H23e EBITDA to fall 9% and there is a good chance that its net debt to EBITDA rises to above 2.0x.

Inghams has provided a business update highlighting the challenges given exploding COVID-19 cases in Australia over the past four weeks. While little financial detail was provided, we have lowered our EBITDA by $67 million to $413 million in FY22e. About two-thirds of the downgrade relates to COVID-19, the remainder is higher feed costs, which is an ongoing concern given recent spot prices are up double-digit. The company will provide more detail at its results in late February 2022.