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What Does the Future Hold for Dividend Stock Petra Foods Limited? – Part 2

Welcome to the second part of the series exploring Petra Foods Limited’s (SGX: P34) business. In my previous article, I covered the revenue dynamics for Petra Foods. In here, I’ll take a look at the cash flows and balance sheet of the company.

As a recap: Shares of Petra Foods Limited (SGX: P34) have outperformed the broader market over the last five-plus years.

To that point, the company’s shares are up 240% from 1 January 2010 to last Friday. By comparison, the capital gains of the SPDR STI ETF (SGX: ES3) is 14.5% for the same period; the SPDR STI ETF is a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI).

Besides being a market-beater, the firm has also been a nice dividend stock by virtue of its growing payouts over the past five years:

Financial Year Dividends per share
(Singapore cents)
2010 3.78
2011 4.84
2012 4.92
2013 8.12
2014 7.50

Source: Petra Foods’ Earnings Report

The business of Petra Foods is focused around the production of branded chocolate confectionaries with brands such as Top, Silver Queen, Knick Knacks, and Goya falling under the firm’s portfolio. In addition, Petra Foods also distributes a diverse mix of agency brands from other global companies.

In terms of geography, the majority of Petra Foods’ sales come from Indonesia and other regional markets such as Malaysia, Singapore, and the Philippines.

A closer look at the bottom-line

On an EBITDA (earnings before interest, taxes, depreciation and amortization) basis, we can see in the chart below that Petra Foods’ overall profits have also dropped significantly due to the divestment of its cocoa ingredients business in 2012 as mentioned in the first part of the series.

image

Source: Petra Foods’ Earnings Report

In 2010, the EBITDA for both business segments were nearly identical even though revenue from the Cocoa Ingredients and Branded Consumer segments were US$1.2 billion and US$366 million respectively. In other words, the latter segment has been historically more profitable for Petra Foods. It’s also worth noting that the Branded Consumer segment has been growing its profit at an annual rate of 8.2% from 2010 to 2014.

Let’s take a look at Petra Foods’ operating cashflow and capital expenditures next.

OCF and Capex Petra Foods

Source: Petra Foods’ Earnings Report

For the five years studied, the operating cashflow was mostly lower than its capital expenditures. This means that Petra Foods has generated negative free cash flow for four out of its past financial five years – that’s not a very desirable trait to have.

Let’s move on to the firm’s balance sheet.

Cash and Debt Petra Foods

Source: Petra Foods’ Earnings Report

With the divestment of its Cocoa Ingredients business, Petra Foods has managed to improve its balance sheet dramatically from 2013 onward. The chocolate purveyor ended 2014 with US$149 million in cash and cash equivalents and US$74 million in borrowings and that’s a nice picture to see when it comes to the firm’s financial health.

Foolish Summary

Putting the overall picture together, we can see why Petra Foods had moved to divest its Cocoa Ingredients business as it had less revenue growth and was less profitable.

What investors may want to hope for with Petra Foods is the continued growth in sales which can be readily converted into cashflow. The past five years has not been kind to Petra Foods’ free cashflow, so that may be an area for investors to keep an eye on alongside the strength of the firm’s balance sheet.

As of Petra Foods’ closing price of S$3.50 on 12 June 2015, the chocolate maker’s trading at a trailing price-to-earnings ratio of about 36 and has a dividend yield of around 2.2% (thanks to its annual dividend in 2014).

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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 doesn’t own shares in any companies mentioned.