2 Reasons to Be Optimistic About Super Group Ltd

Super Group Ltd (SGX: S10), best known for its instant coffee products, has had a rough 2015 so far. But amongst the uncertainty may lie opportunity.

First, the bad news. Revenue has declined by 5% year-on-year for the first nine months of 2015. Lower sales has lead to Super Group’s profit falling by a hefty 26% over the same period. The weak performance has not gone unnoticed: Shares of Super Group have declined by nearly a quarter since the start of 2015.

With that out of the way, let’s touch on the reasons to be optimistic as we sift through the wreckage. Here are two.

1. Free cash flow remains healthy – click here

2. Strong balance sheet

Despite the downturn in revenue, Super Group’s balance sheet has remained fairly strong.

In the last two quarters, Super Group’s net-cash position had strengthened compared to their respective levels a year ago. Currently, Super Group’s net-cash position is sitting at around $70.7 million; this is an improvement over the net cash position of $47 million a year ago.

The changes in Super Group’s net cash position over the past few quarters are summarised in the graph below.

super group cash

Source: Super Group Ltd’s earnings announcements

Together with the presence of free cash flow, a healthy balance sheet gives Super Group’s management team options to execute its strategy. Super Group has outlined three major areas that it is looking at to drive growth, namely, branding, product innovation, and geographical diversification. The company has also hinted at acquiring other companies in the future.

Furthermore, Super Group has recently released new products such as ESSENSO, an instant microground coffee beverage, and Owl Kopitiam Roast, a new range of kopitiam-styled coffee. Over the long term, it may be important for Super Group to keep innovating and bringing new products to the market.

Foolish summary

The tough operating environment may continue for a while, but Super Group’s higher free cash flow and healthy balance sheet gives the management team financial options to invest for its future.

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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