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Then and Now: Is Fraser and Neave Limited an Investing Opportunity Now? – Part 3

This is the third and final part of the series exploring the evolution of Fraser and Neave Limited’s (SGX: F99) business over the past few years. You can check out the first part here and the second part here.

In the first chapter, I looked at how the century-old Fraser and Neave, which is better known as F&N, had changed from a sprawling conglomerate with multiple interests into a more focused company that provides beverages, dairies, and printing and publishing services.

Then, in the second chapter, I looked at how F&N’s geographical exposure and reach had changed as a result.

In here, I’ll be studying how F&N’s cashflow and balance sheet has changed. This may hold the key as to whether there’s an investing opportunity with F&N now.

Then and now

F&N OCF FCF

Source: F&N’s earnings report

As a brief recap, F&N had exited its breweries segment in late 2012 and then subsequently spun-off of its commercial and development property segments in 2014. The twin changes whittled down F&N’s business segments to just beverages, dairies, and printing and publishing.

Despite the changes, the good news is that the company was free cash flow positive in FY2014 (fiscal year ended 31 September 2014), raking in a cool S$109 million in free cash flow. One year does not make a track record, but this performance may suggest that F&N’s beverages segment and dairies segment may be worth a look.

Let’s move on to the company’s balance sheet next.

F&N balance sheet

Source: F&N’s earnings report

If we look at how far F&N has come, we may be quite pleased with where it is right now. In FY2014, F&N’s cash position may have fallen significantly compared to a year ago, but its borrowings made an even larger decline.

The net effect is that the company ended FY2014 with S$356 million in cash and equivalents and S$142 million in debt. This gives F&N a net cash position and hence a strong balance sheet.

Putting together the investing story

By studying the evolution of F&N through this three-part series (here’s Part 1 and Part 2 again), we can now see that the investing opportunity lies in the future of the company’s beverages, dairies, and printing and publishing business segments.

For the beverages segment, we may be comforted by the long term deal that F&N had struck with Nestle early this year that could provide predictability for the segment’s revenue. The business segment changes also mean that the future of F&N would now be more dependent on its operations in Malaysia and the wider ASEAN region.

F&N’s positive free cash flow and strong balance sheet suggest that the company may have some investing merit for investors.

But of course, there are some important risks that come along with F&N’s business. One important threat to consider deals with how F&N’s stake in Myanmar Brewery may be sold in the future. We will have to watch how the sale might change F&N’s revenue and profit make up.

In my opinion, F&N may also have to decide whether its printing and publishing business has a long term future given that the segment has struggled for much of the past five years.

At its closing price of $2.70 yesterday, F&N trades at hefty trailing price to earnings ratio of 118 and offers a 1.9% dividend yield (thanks to its dividend of S$0.05 per share in FY2014). The onus remains with the Foolish investor to decide if the share price offered compensates for the opportunities and risks they might see in F&N.

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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.