Lonrho’s new deal with Wal-Mart is a significant achievement says Panmure Gordon

Lonrho’s (LON:LONR) contract with Wal-Mart, the world's largest retailer, is a significant achievement and a further validation of its Oceanfresh business unit, according to City broker Panmure Gordon.

This morning Lonrho unveiled the deal which sees it initially supplying 500 Wal-Mart stores with its pure Hake fillets from October onwards.

The fish is caught from the Benguela current off the coast of Southern Africa, using sustainable methods.

Panmure's Damian McNeela reckons the tie-up could ultimately lead to series of deals with the US supermarket giant.

“Should the roll out of hake fillets into Wal-Mart progress according to plan, we believe that there could be further opportunities to expand the supply arrangement into other product lines from Oceanfresh, and potentially from Lonrho’s wider Agribusiness division,” the analyst said in a note to clients.

Near-term Lonrho’s focus will remain on the successful delivery of the hake contract. “Wal-Mart has around 3,800 stores across the USA in a range of different formats. Oceanfresh is initially aiming to roll out the hake fillets into 500 stores per quarter from the beginning of October," he added. 

“Our understanding is that the company will focus initially on the East Coast, where there is a better appreciation of hake, and then we expect the product to be rolled out into the Wal-Mart heartland of Southern and Central USA, followed by North Central and Western USA.”

According to McNeela’s estimates the hake deal alone could deliver revenues between £10-15 million in 2012, and that figure could rise to around £17-20 million from 2013 onwards.

The analyst, who repeated a buy recommendation and a 23 pence per share price target, added: “We continue to believe that Lonrho continues to offer substantial long term growth potential from its diversified approach to economic development in sub Saharan Africa.”

In this morning’s statement Lonrho said that it has expanded its production capabilities as a result of the deal, which will add around one hundred new jobs in South Africa. 

“Lonrho is delighted that Oceanfresh has been appointed as a fish supplier to the world's largest retailer Walmart,” said chairman David Lenigas.

“Lonrho understands the importance of responsible fishing policies and prides itself on delivering the best quality products that are wild caught and from well managed and sustainable sources,” Lenigas added.

“Oceanfresh has been diligent in working with the World Wildlife Fund's sustainable sourcing program to ensure that fish stocks are properly managed and that catch quotas are within sustainable levels to maintain wild fish stocks for future generations.”

Today’s deals is the latest example of Lonrho’s ongoing expansion, as the African conglomerate pursues its strategy to build a major agriculture and food supply business that delivers from ‘field to the fork’.

Last week Lonrho unveiled a £4.5 million deal to acquire a leading airborne export business Grindrod PCA. The deal added vital export and logistics infrastructure to the Lonrho agri-business, which is trying to grow to meet high levels of demand from major international food retailers. 

Grindrod PCA, headquartered at Johannesburg International Airport, is a leading exporter of fruit, vegetables and fish into the globalmarket.

Specifically the acquisition adds cold store capacity, it will allow for more efficient handling of perishable goods and it will create potential cost savings. Grindrod PCA operates international standard cold store and logistics facilities in Johannesburg, Cape Town, Port Elizabeth and George.  

Lonrho’s vertically integrated agri-business already comprises several companies that grows, packs and delivers food produce to retailers both in Africa and around the world – with major supermarket clients in USA, Europe and the Far East.