Super Group Ltd (SGX: S10) is an instant coffee manufacturer with brands that are likely to be easily identifiable to most Singaporeans. But, the last few years have been painful for the company: Falling profits have been accompanied by a declining share price. To the point, Super Group’s peak profit of S$100 million in 2013 has fallen by over half to S$47 million in 2015. Meanwhile, its shares have also been slashed by nearly 60% from a peak of around S$2.50 in August 2013 to S$1.00 today. It probably doesn’t help that Super Group is also operating in an extremely competitive…
Super Group Ltd (SGX: S10) is an instant coffee manufacturer with brands that are likely to be easily identifiable to most Singaporeans.
But, the last few years have been painful for the company: Falling profits have been accompanied by a declining share price. To the point, Super Group’s peak profit of S$100 million in 2013 has fallen by over half to S$47 million in 2015. Meanwhile, its shares have also been slashed by nearly 60% from a peak of around S$2.50 in August 2013 to S$1.00 today.
It probably doesn’t help that Super Group is also operating in an extremely competitive market. One of the company’s closest rivals in the region is the Malaysia-listed OldTown Berhad (KLSE:5201.KL).
Despite being a Malaysian company, OldTown should be familiar with many Singaporeans. The company’s OldTown White Coffee café chain was first brought into Singapore by famous local celebrity, Mark Lee. Meanwhile, Old Town’s instant coffee mix products are also found in Singapore.
There are other similarities between Super Group and OldTown: Both also export their coffee mix products to regional markets such as Malaysia, Thailand, and the Phillippines. Given these similarities, the individual investor may wonder: How would Super Group and OldTown’s business fundamentals compare right now? Let’s take a look.
In terms of size
Although – like I’ve mentioned – both Super Group and OldTown operate in similar markets and have similar products, the two companies differ greatly in size.
Super Group is the larger of the two, with a market capitalization of S$1.11 billion. In contrast, OldTown only has a market capitalization of RM670 million (approximately S$230 million). There is a wide gap in revenue between the two companies as well. Super Group recorded total revenue of S$509 million in 2015 while OldTown booked revenue of “just” RM386 million (S$130 million) in the same year.
In terms of efficiency
While OldTown loses out in size, it makes up for it in its efficiency at utilising shareholder’s capital. According to S&P Global Market Intelligence, the Malaysia-based company recorded a return on asset of 8.5% and return on equity of 12.7% in 2015. Super Group, on the other hand, saw a much poorer performance in the same year with a return on asset and return on equity of just 6.0% and 9.3%, respectively.
It’s a similar picture as well when it comes to both companies’ gross margin: OldTown is much farther ahead. In the 12 months ended 31 December 2015, the company had a gross margin of 59.8% whereas Super Group’s was only 35.8%.
In terms of valuation
At the moment, OldTown is trading at about 15 times its trailing earnings whereas Super Group has a trailing price-to-earnings (PE) of 24.
At first glance, it’d appear easy to conclude that OldTown has the better valuation. But, it is worth noting that Super Group’s profit is currently at its lowest over the past six years. If that’s a cyclical phenomenon, then it might mean that Super Group’s valuation on a normalized-earnings-basis would look better. So, based on a simple valuation metric such as the trailing price-to-earnings ratio, it would be hard to definitively conclude that Super Group is indeed more highly valued than OldTown.
To sum it up, OldTown appears to have the better business fundamentals by virtue of its higher efficiency and superficially lower valuation. But it should be noted that what I’ve shared should not be taken as the final word on the investing merits of the two instant coffee stocks. Further research is needed before any investing decision can be made.
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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 Stanley Lim owns shares in Super Group.