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Alert! This Share Is At a 52-Week Low. Are Better Times Just Ahead?

Imagine you have a business in which you’re a brand owner and distributor of instant coffee, frozen convenience food, and snacks. The business, which generates hundreds of millions of dollars in annual sales, operates in a foreign country.

Unfortunately, this country’s economy has been in decline for a while and its citizens are getting angry with the government. A protest in the country, which started out as a ‘normal’ protest, recently erupted but then morphed into a full-fledged revolution.

The chaos created led a neighbouring country to take advantage of the situation and resulted in a small-scale invasion into a province of the chaotic nation. But before any new government in the country can respond to the brazen act of its neighbour, it also has to contend with the threat of civil war in its own turf.

What will you do with regards to your business?

What I’ve just described is the gist of what has happened to Food Empire (SGX: F03) this year. The company counts Ukraine (the country in which a protest became a revolution) as its second largest market and has been hard hit by the ongoing political crisis there.

To make things worse, the country that Ukraine is having a conflict with is Russia (the neighbor), which happens to be Food Empire’s largest market.

The Oxford Dictionary defines a ‘perfect storm’ as “an especially bad situation caused by a combination of unfavourable circumstances.” It’s an apt description for what Food Empire is going through right now.

Not the first crisis the company has faced

Between 2010 and 2013, Food Empire had actually managed to grow its revenue at an annual clip of 14.4% (from US$175.8 million to US$262.9 million). However, the crisis between Ukraine and Russia had affected the company greatly, plunging its earnings into negative territory; Food Empire suffered a loss of US$3 million in the first quarter of 2014 as compared to a profit of US$5.6 million in the corresponding period a year ago.

As a result, shares of Food Empire have dropped from a high of almost S$0.70 in the last 12 months to its current price of S$0.39 which is just a smidgen higher than its 52-week low of S$0.36.

But despite the horrible consequences that the recent crisis has had on Food Empire’s business, management understands that geo-political turmoil is part of the risks that comes naturally with operating in emerging markets. More importantly, this is not the first time the company is facing a crisis in Ukraine.

During Ukraine’s Orange Revolution that happened in November 2004, Food Empire was already operating in the country and had successfully weathered through the storm (profit grew from US$15.7 million in 2004 to US$20.6 million in 2005).

After coming through that crisis generally unscathed, Food Empire continued growing and its shares rallied from S$0.30 per share during the revolution to its all-time peak of S$0.97 per share in 2007.

Foolish Summary

In investing, history can only serve as a guide for us and no one can ever be certain about the future. Food Empire has weathered past storms well – can it do the same for this curent perfect storm? We’ll know in time to come.

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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 Stanley Lim owns Food Empire.