Are Better Days Ahead For Petra Foods?

Despite it seemingly not commanding much attention from the investment community, Petra Foods Limited (SGX: P34) actually carries a pretty hefty market capitalisation of some S$2.3 billion. The company makes chocolate and sugar confectionary under its own brands like Delfi, Top, and Goya.

Besides producing the sweets, Petra Foods also distributes its products all over Asia and counts Indonesia as its key market.

Prior to July 2013, Petra Foods also owned a cocoa ingredients business which it has since sold off to European chocolatier Barry Callebaut. 2014’s the first year in which Petra Foods is reporting financials that do not include those of its cocoa ingredients operations. With the release of its second quarter results yesterday, let’s take a look at how it fared.

Current earning power

For the first half of 2014, Petra Foods saw its revenue climb 1.0% to US$254.6 million compared to a year ago. Indonesia continues to be the company’s largest geographical market, accounting for 73% of Petra Foods’ total sales.

Gross margin in the period was affected slightly – it dropped from 32.3% a year ago to 31.9% – as the company faced higher material costs, though efficiency initiatives had helped to offset some of the negative impact..

Despite being able to focus solely on its branded consumer products now,  the company actually saw net profit decrease by 6.2% year-on-year toUS$27 million. That translates to a return on equity of 18.5% for the company.

Balance sheet

After the sale of the cocoa business, the company has been in net cash position. As of 30 June 2014 Petra Foods currently has a net cash position of US$121.5 million (total cash minus total debt).

Foolish Take

With a more streamlined business now, the company can focus on expanding both its product line as well as the geographic reach of its consumer products. With a strong balance sheet, the company is well positioned for the next stage of growth in its life even if things aren’t completely smooth-sailing now.

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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 doesn't own any shares of companies mention above