Petra Foods Says Good-Bye to its Cocoa-Ingredients Business

Up until 11:42pm yesterday, Petra Foods (SGX: P34) was known as a confectionary company with substantial interests in the supply of cocoa ingredients to third-party food & beverage manufacturers. But all that is no more, as Petra Foods made an announcement – at 11:42pm – that it has completed the sale of its Cocoa Ingredients division to European chocolate maker Barry Callebaut on 30 June 2013. The sale was already in the works in December last year when the two companies entered into an agreement.

From now on, Petra will concentrate its efforts on its Branded Consumer business, where its confectionary sales are logged under.

The sales proceeds accruing to Petra Foods are currently estimated to be US$860m, almost US$90m short of its previous estimates of US$950m. In any case, the actual figure’s not finalised and the company will duly update investors upon the sale’s final post-completion adjustments.

There was previous mention of the possibility of distribution of Special Dividends to shareholders from the balance of sales proceeds after re-investment into Petra’s Branded Consumer business. But, due to the current uncertainty over the actual net-sales-proceeds, management can’t make any decisions on the Special Dividends yet and shareholders will have to await further notice.

The new focus on the Branded Consumer business seems a smart move on management’s part, given its 17.2% annualised growth in revenue to US$478m for the five years ended Dec 2012. Meanwhile, earnings grew at an even faster annualised rate of 28.6% to US$55m in the same period. Petra’s recent first quarter results for 2013 saw the Branded Consumer business continuing its growth trend by posting a 20% year-on-year increase in quarterly profit to US$14.1m.

Chuang mentioned during yesterday’s divestment-announcement that the company’s “excited about [Petra’s] future” in the confectionary markets in Asia due to demographic trends as well as rising incomes.

In any case, the company does not seem to be the only one that’s excited about its own future, given the market’s lofty valuation of Petra at more than 50 times its last-12-months’earnings for its Branded Consumer business at its current share price of $3.93.

That’s an expectation of the market for a bed of roses for Petra. Can it deliver? Only time will tell.

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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.