Shares of Super Group Ltd Rise More than 14% in Two Days: Things to Look Out For

Welcome to the second part of the conversation on Super Group Ltd (SGX: S10)!

As a brief recap: Over the past two days, shares of Super Group have enjoyed a nice 14.2% increase in price from S$1.20 to S$1.37. This comes after the food and beverage outfit reported its fiscal fourth-quarter earnings last Friday.

We covered positive developments in my first article, but let’s look at the things that didn’t go as well here.

Things to look out for

The business of Super Group can be divided into two segments: Branded Consumer (BC) products and Food Ingredients (FI). You can read more about Super Group here.

On the good side, Super Group had seen an increase in revenue for the BC segment in the fourth quarter of 2014.

That said, the revenue for the BC segment for the full year was actually down 3.5%. Furthermore, the FI business segment had also experienced a drop in revenue of nearly 9% in the recent quarter.

Let’s dive in deeper into the FI segment.

Super Group FI Chart - 1

Source: Super Group’s Earnings Report; Q4’14 denotes fourth quarter of 2014

The FI segment’s products can be organized into different buckets: non-dairy creamer; soluble coffee powder; and others. As you can see, quarterly revenue for both products in the fourth quarter of 2014 are down year-on-year, so Super Group has some work to do here.

That said, the yearly revenue for non-dairy creamer was up 5.4% from $117.5 million in 2013 to $123.9 million in 2014. This bodes well for Super Group’s plan to shift towards production of premium nutritional oil powders in its Wuxi plant in China.

With that, we can look at the geographical spread of the FI revenue.

 image (3)

Source: Super Group’s Earnings Report

The geographical distribution of revenue for the FI business segment is quite different from the BC business segment. As seen above, revenue from East Asia (which includes China) spiked and made up a significant chunk of sales for the FI segment in the recent quarter.

This development could be critical for the future of Super Group for it to understand the taste profiles of Chinese citizens when it comes to their preference for beverages.

Moving on, the Southeast Asia side experienced a sharp decline in sales for the FI segment in the recent quarter and for the full year. Management cited lower sales from Indonesia as one of the reasons for the decline for the whole of 2014.

The long term story

Although Super Group’s recent fourth-quarter results were mostly encouraging, one datapoint does not make a trend.

Meaningful long-term share price growth for Super Group may come if the company is able to build a strong brand on the BC side and leverage on the consumer taste profile knowledge-base it has gleaned from its FI business segment.

We should also keep the longer term picture in mind for Super Group:

image (5)

Source: Super Group’s Earnings Report

Despite the stumble in 2014, we have seen revenue-growth for both of Super Group’s business segments over the past five years from 2009 to 2013. Indeed, Super Group’s total revenue of S$540 million in 2014 is some 82% higher than its revenue of S$296 million seen in 2009.

The key for the long-term investor here is to keep looking for long-term progress in the company’s underlying business (with less attention paid to the short-term movement of the company’s share prices).

This has been a quick look at the underlying drivers of revenue for Super Group. The astute Foolish may also want a further look into the company’s free cash flow and strength of its balance sheet for a more comprehensive take on the health of the company’s business.

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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 Chin Hui Leong owns shares in Super Group.