Sadia surpassed its 52 week high for all the right reasons. Besides the relatively minute risks of increased inflation and any avian flu scare, this Brazilian food giant is operating in a country whose GDP is expected to grow another 5% in 2008, only about 2% of that being impacted by the U.S. economy.
Increased consumer income/spending validates the recent speculation
over Sadia and Peridgao raising prices, and Citigroup's (just
initiated coverage) statement that demand for processed products
'continues to grow at double digit rates,' as well as the recent rise
in chicken prices. These all more than offset the recent increase in
wheat prices that posed threat to Sadia's gross margin (did I mention
Sadia has the highest gross margin and return on equity in the
industry? with one of the lowest P/E ratios?) So I'm not concerned
with what this company can achieve with it's cost effective business
structure, not to mention what it does with all of the money it has.
With 78% of gross operating revenues from processed products in 2007
and the kind of efficiency mentioned before, I am excited to see what
it can do if Citigroup is correct about the future demand for
processed products. But it seems that Sadia agrees with Citi on this
spur of double digit growth. During 2007 Sadia acquired Big Foods
for R $53.5 million, specializing in the production of half a dozen
processed foods with an annual capacity of 20 thousand tons of
processed products. One of their newer investments in this segment of
their business is another plant in the State of Pernambuco for R$ 190
million, and keeping up with the 'green' trend, will be the 'first
plant in the meat industry to neutralize 100% of its carbon
emissions.' Rising chicken prices? Sadia signed an agreement in
January (08) to purchase another plant with a capacity of 100 thousand
chicken heads per day through 08. No doubt Sadia is going to meet the
demand, and in an efficient as hell way.
