Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis. Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), has ended the week on a good note as it gained 0.32% to 3,316 points today. Let’s venture outside the index to have a closer look at a couple of market beaters. Food Empire Holdings Limited (SGX: F03) is up 1.41% to S$0.360 after releasing its third quarter earnings yesterday evening. The instant beverage and snacks manufacturer had seen…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis.
Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), has ended the week on a good note as it gained 0.32% to 3,316 points today. Let’s venture outside the index to have a closer look at a couple of market beaters.
Food Empire Holdings Limited (SGX: F03) is up 1.41% to S$0.360 after releasing its third quarter earnings yesterday evening. The instant beverage and snacks manufacturer had seen its revenue climb 9.8% year-on-year to US$72.6 million for the quarter ended 30 September 2014.
But, currency woes had weighed heavily on the company’s bottom-line, resulting in a quarterly loss of US$0.8 million versus a profit of US$2.6 million a year ago. Food Empire’s business is centered in Russia and Ukraine but it reports using the U.S. dollar. Thus, currency swings for the two currencies against the U.S. dollar can have huge impacts on the company’s quarterly results.
And as it stands, the ruble and hryvnia had depreciated significantly against the U.S. dollar over the first nine months of 2014; the former had weakened from 32.7 ruble per dollar to 39.4 while the latter had weakened from 8.24 hryvnia per dollar to 12.95.
If currency impacts were stripped away, post-tax profit for Food Empire for the third quarter of 2014 would have been US$5.2 million instead. Constant-currency comparisons for the company’s business can help give investors a better perspective of the company’s progress and on that front, Food Empire’s performance is more than decent given its profit of US$5.2 million.
As readers may be aware, there were significant political tensions between Russia and Ukraine in the earlier part of the year. This led to a series of economic sanctions being placed against Russia by the international community, leading to capital flight from the country. In its earnings release, Food Empire warned that the ruble “continues to come under pressure due to capital flight arising from” the sanctions.
Although the company has a “strong position in the market” which can help it to brave through the currency crisis, “a sustained and significant devaluation of the Russian Ruble will weigh negatively on the [company’s] overall profitability.” This is definitely a risk Food Empire’s investors have to watch, although how the situation might evolve is really up to anyone’s guess.
Frasers Centrepoint Ltd (SGX: TQ5) has gained 0.91% to S$1.66. The property group had released its full-year results just two days ago on Wednesday and turned in some strong numbers. For the year ended 30 September 2014, revenue grew 33% to S$2.73 billion while profit (before fair-value changes and exceptional items are included) jumped some 25% to S$501 million.
After one-off charges and fair-value changes had been included, Frasers Centrepoint’s profit would have declined by 31% from S$722 million a year ago to S$501 million. Although this version of the bottom-line is important, it’s also important to have a gauge of how well the company’s operational performance has been, and that can be given by its profit before fair-value changes and exceptional items.
During the year, Frasers Centrepoint had acquired Australian property group Australand and the acquisition can be a significant driver of growth for the company in the country due to Australand’s scope and assets. This would be an area to watch for investors – hopefully, Frasers Centrepoint would be able to extract maximum value from the purchase and create shareholder value.
Although Frasers Centrepoint’s had turned in a good performance in terms of its sales and profit, risks with the company’s balance sheet is something investors have to observe. As of 30 September 2014, Frasers Centrepoint carried net debt (total borrowings minus total cash) of S$6.73 billion and this is a huge jump from the net debt position of S$3.15 billion seen exactly a year ago.
The company’s balance sheet has deteriorated significantly largely as a result of borrowings needed to finance the Australand acquisition. Although Frasers Centrepoint’s current cost of borrowings is low at 2.8%, it’s worth pointing out that only 35% of its borrowings have fixed interest rates. If interest rates should rise, the company’s cost of debt would rise accordingly and the increase in interest expenses might then weigh heavily on the company’s cash flows.
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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 writer Chong Ser Jing does not own shares in any companies mentioned.