The Motley Fool

4 Reasons Fraser and Neave Limited Makes an Attractive Investment

Fraser and Neave Limited (SGX: F99), or F&N, was established in 1883 and is a leading consumer group with businesses in food and beverages (F&B) and publishing and printing. F&N is present in 11 countries spanning Asia Pacific, Europe, and the US, and it employs 7,700 people worldwide.

F&N is a household name in Singapore and has been behind some of the most familiar and iconic brands of beverages sold in Singapore and Malaysia. Some of these brands include Magnolia (fresh milk), 100-Plus (isotonic drink), Ice Mountain (mineral water), and Seasons (tea, sugar cane, and soybean drinks). The group has more than 13 F&B production facilities, 45 warehouses, and a range of 500-plus products.

Here are four reasons F&N is a very attractive investment.

1. Higher revenue for beverages and dairies, better gross margin

In its 9-month 2019 earnings report (the group has a 30 September year-end), F&N announced higher revenue for its core beverages and dairies divisions. Revenue from the beverages division increased by 8.5% year on year to S$368 million, while the dairies division saw its revenue rise by 3.5% year on year to S$863 million. The better performance for both these divisions is a solid positive for the group and demonstrates strong demand for its wide variety of drinks and brands.

Gross margin for the period also improved from 31.1% to 32.8%.

2. Strong free cash flow

The group continued to generate strong free cash flow. In its most recent earnings report, operating cash flow was S$121.8 million, while free cash flow was S$27.2 million. This was more than double the free cash flow generated in the same period last year, which was at just S$12.5 million. This consistent pattern of cash-flow generation is another positive aspect of F&N.

3. Acquisition of Print Lab

Investors should note that print and publishing had a poor showing last year, incurring a loss before income tax of S$11.5 million. For Q3 2019, though, this division put up a strong showing by generating S$7.4 million of profit before interest and tax (PBIT), bringing its 9-month 2019 performance into the black.

Furthermore, F&N had acquired a 60% interest in Print Lab for S$24.5 million in April 2019. Print Lab is a one-stop print, creative, and digital out-of-home solution provider in Singapore that serves many blue-chip companies, and this acquisition will further bolster the division’s performance moving forward.

4. Acquisition of Starbucks Thailand

In May 2019, F&N entered into an agreement with Maxim’s Caterers Limited to acquire the entire issued share capital of Starbucks Coffee (Thailand) Co., Ltd. This will add yet another brand to F&N’s already burgeoning stable of brands and allow F&N to leverage Maxim’s long-standing partnership with Starbucks to grow the Thai market.

Thailand currently has 372 Starbucks stores, and this acquisition will be earnings-accretive.

A strong track record paired with household brand names

F&N has demonstrated a long track record of delivering consistent profit to investors, and coupled with its household brand names, which have stood the test of time, it represents an attractive investment thesis for investors. As healthy drinks have become more popular, F&N is also adding the “less sugar” label to its products to keep up with these trends.

Investors in F&N can continue to drink to better results from the group moving forward.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.