The secret to not losing money on your shares can sometimes be something as simple as not selling when the chips are temporarily down. I had purchased shares of Super Group Ltd (SGX: S10) back in June 2013 and June 2014 at S$1.90 and S$1.39 each. When I first bought shares of the branded instant coffee and food ingredients maker, it was arguably firing on all cylinders. It had a strong balance sheet (with S$93.6 million in cash and no debt) and for the four year period from 2008 to 2012, sales, profit, and cash flow had grown at impressive…
The secret to not losing money on your shares can sometimes be something as simple as not selling when the chips are temporarily down.
I had purchased shares of Super Group Ltd (SGX: S10) back in June 2013 and June 2014 at S$1.90 and S$1.39 each.
When I first bought shares of the branded instant coffee and food ingredients maker, it was arguably firing on all cylinders. It had a strong balance sheet (with S$93.6 million in cash and no debt) and for the four year period from 2008 to 2012, sales, profit, and cash flow had grown at impressive compounded annual rates of 14.7%, 33.2%, and 25.2% respectively.
But by the second time I bought shares in the company, cracks were starting to appear. In the first quarter of 2014, Super Group’s quarterly revenue and profit had slipped by 6% and 19% partly as a result of competitive threats as well as civil unrest in Thailand, one of the company’s main geographical markets.
As the year proceeded, things ended up not being smooth either with Super Group clocking a 4% decrease in sales in the first nine months of 2014 and a 45% drop in profit, with new worries over rising raw material costs plaguing the company. Shares of Super Group reflected that weakness in its business and slipped to nearly S$1.00 in mid-November 2014 after having experienced steady declines throughout the year.
At Super Group’s November-low, I was sitting on losses of around 45% (on my first purchase) and 25% (on my second purchase). But I didn’t sell because I thought the business was still going fine. The company still had a great balance sheet (S$79 million in cash with just S$30 million in debt) and was still churning out cash with S$34 million in operating cash flow for the first nine months of 2014 – these are all resources Super Group can use to fuel future growth.
Furthermore, as my colleague Chin Hui Leong pointed out in his coverage of Super Group’s third-quarter 2014 earnings release, the company had been working hard on its branding campaigns for its instant beverages to drive consumer interest in addition to coming up with new products in its Food Ingredients (FI) space:
“In all, there is flicker of hope that its marketing campaigns in Malaysia and Thailand has brought about signs of a pick up in its BC [Branded Consumer] segment. Thailand and Myanmar represent significant markets for the group and would be key for its recovery in sales. It is worth to note that Super Group launched its rebranding efforts in January 2013, therefore patience is required for its branding efforts to pay off in the long term.
On the FI side, we can also look towards new products broadening its offerings, and laying the groundwork to understanding consumer taste profiles for the future.”
The changes that Hui Leong pointed out gave me the confidence that the company might yet turn out fine over the long-term, especially given the company’s strong history with product innovation.
As it turned out, Super Group’s earnings for the fourth quarter of 2014 may have marked a turning point of sorts. The company managed to arrest a decline in revenue for the quarter on a year-on-year basis, and even managed to churn out a 15% increase in quarterly profit. In addition, Super Group had also refined its marketing strategies for its branded instant beverages and also completed its botanical herbal extract production line which would enable the firm to produce new botanical tea products for its FI segment (existing products for the segment include non-dairy creamers and soluble coffee powders).
These positive changes, and more, ended up being warmly greeted by the market, with Super Group’s shares now finally back at S$1.39 as of the time of writing (12:33 pm).
It was certainly painful to see my holdings of Super Group steeped in red. But by having a focus on and confidence in the progress of the company’s business, I held onto its shares and am now break-even on my second purchase.
It must be noted though, that the final verdict is not out yet and none of the above is meant to say that Super Group will certainly turn out to be a great investment for me – as it is, both purchases are losing to the market badly with the Straits Times Index (SGX: ^STI) up 9.3% and 3.6% respectively since the dates of my first and second purchases of Super. But, I’m still patiently waiting to see what happens next with the firm’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 writer Chong Ser Jing owns shares in Super Group.