Welcome to the Foolish Face-off! It?s often not easy to choose between similar companies for your hard-earned dollars and we recognise that. So, we?re here to make life a little easier by pitting companies with similar operations against each other in a friendly bout.
Previous instalments have seen us pit Singapore-listed companies against their foreign counterparts. We saw Thai Beverage go up against SABMiller, picked a winner between Singapore Press Holdings and Pearson, squared off Singapore Exchange with London Stock Exchange and flew alongside the ring with…
Welcome to the Foolish Face-off! It’s often not easy to choose between similar companies for your hard-earned dollars and we recognise that. So, we’re here to make life a little easier by pitting companies with similar operations against each other in a friendly bout.
Previous instalments have seen us pit Singapore-listed companies against their foreign counterparts. We saw Thai Beverage go up against SABMiller, picked a winner between Singapore Press Holdings and Pearson, squared off Singapore Exchange with London Stock Exchange and flew alongside the ring with Singapore Airlines and International Airlines Group.
To spice things up with more local flavour, we then started looking at how locally-listed companies stack up against each other. We debuted Sembcorp Industries and Keppel Corp as our first pair of contenders before checking out who ruled the phone-lines between Singtel and Starhub.
In our latest instalment of the Foolish Face-off series, we’re going to see two companies slug it out in an international sugar-fest. Meet confectionary manufacturers Petra Foods (SGX: P34) and Mondelez International (Nasdaq: MDLZ).
Petra Foods is one of the largest food-related companies in Singapore in terms of market value. It manufactures and distributes chocolate and sugar confectionaries to South East Asian countries such as Indonesia, Philippines, Malaysia and Singapore. Some of the brands that Petra Foods carries includes Delfi and Goy and the main bulk of the company’s revenue comes from Indonesia.
The company has two main business divisions – the Branded Consumer division and the Cocoa Ingredients division. Petra Foods logs its confectionary sales under its Branded Consumer division and it seems to have hit the sweet spot with consumers as sales have grown by almost 17% annually since 2008 to US$478m. Last December, the company agreed to sell its Cocoa Ingredients division to Barry Callebaut AG and Barry Callebaut Belgium N.V. for US$950m and the sale will be completed by June or July 2013. The Cocoa Ingredients division had brought in US$1.03b in sales last year while making a loss of US$28.6m
Mondelez International, based in the USA, used to be known as Kraft Foods Inc. The name change was triggered when Kraft Foods Inc.’s North American grocery business was spun-off into Kraft Foods Group (Nasdaq: KRFT) last October and the remaining business was renamed into Mondelez International.
Besides making chocolates and candies, Mondelez also makes biscuits, beverages and dairy products. It’s a much bigger company than Petra Foods, with world-wide operations in regions such as Europe, North America, the Middle East, Africa, Asia-Pacific and Latin America. The company owns more than 60 brands including nine billion-dollar brands such as Cadbury, Nabisco and Oreo. Sales of Mondelez hit US$35b last year.
|Last 12 month Sales||S$583.8m||US$35.0b|
|*Sales Figures for Petra Foods are based on its Branded Consumer segment.**Sales Figures for Mondelez does not include the Kraft Foods Group|
Round 1: Valuation
When we invest, we want to know which company’s offered at a cheaper price in the stock market. And that’s why in the Foolish Face-off’s first round, we’ll compare the valuations of the two companies based on its Price-to-Earnings (PE) ratio, Price-to-sales (PS) ratio and Dividend Yield.
|*PE, PS for Petra Foods are based on figures from its Branded Consumer segment for the last twelve months. The dividend yield is based on reported figures for the last twelve months.
**Financial figures for Mondelez does not include the Kraft Foods Group.
We can see that Mondelez has a much smaller PS ratio, higher dividend yield and a PE ratio that’s a smidge smaller than Petra Foods’. Round 1 has to go to Mondelez.
Round 2: Profitability
In the Face-off’s second round, we our attention to the profitability of the two companies. As investors, we’ll like to know how efficient a company is at turning each dollar of sale into profit and we can know that from observing its gross and net profit margins. Besides turning sales into profit, companies also benefit shareholders by turning shareholders’ capital into profit. Return on equity (ROE) measures that ability and generally, the higher it is, the better.
|Return on Equity||
|*Financial figures for Petra Foods are based on its Branded Consumer segment for the last 12 months
**For Mondelez, they are based on figures for its last 12 months and do not include figures from Kraft Foods Group.
Even though Petra Foods loses out to Mondelez in its gross margins, it has a better grasp on net margins and ROE. This makes Petra Foods the winner here.
Winner: Petra Foods
Round 3: Growth
In the tie-breaker round, we will be looking at the companies’ growth. Businesses become more valuable to its shareholders over time if they can sell more goods and services and rake in higher profits. Dividends provide income and investors should pay attention to it as it can mean the difference between a shrinking or growing income stream.
|Revenue Growth CAGR||17.2%||11.2%|
|EPS Growth CAGR||24.4%||76.3%|
|Dividend Growth CAGR||13.7%||-4.8%|
|*Financial Figures for Revenue Growth and EPS Growth for Petra Foods are based on its Branded Consumer segment over the last five completed financial years**Financial Figures for Revenue Growth and EPS growth for Mondelez does not include the Kraft Foods Group figures and are based on its last five completed financial years.|
Mondelez displayed significantly better earnings-per-share (EPS) growth due to a very low-starting point for EPS in 2008 as the company was restructuring its operations resulting in large one-time losses. But other than that, its sales and dividend growth rates have trailed Petra Foods’. Elephants don’t gallop and it seems that’s the case here too.
Winner: Petra Foods
Foolish Bottom Line
Final Score: 2-1 to Petra Foods!
Petra Foods edges out Mondelez in our Foolish Face-off on the back of better growth and profitability even though its shares seem to be pricier.
While it seems that our cursory look at these two companies has Petra Foods being ‘better’ than Mondelez, there’s a lot more for investors to consider. For example, we’ve not looked at the companies’ balance sheet, cash flow situation and competitive advantages, just to name a few.
If you’re interested to know more about other companies, do stay tuned as we bring you more of our Foolish Face-offs in the future!
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.