The Motley Fool

This Coffee Manufacturer Has Risen 140% Since Early 2016. Is It a Great Business?

Food Empire Holdings Limited (SGX: F03) is a branding and manufacturing company in the food and beverage sector. The group’s products include instant beverage products, frozen convenience food and snack food. Its products are exported to over 50 countries, and the group has eight manufacturing facilities with 24 offices worldwide.

Food Empire has seen its share price climb more than 140% from a low of S$0.21 in early 2016 to the current S$0.50, giving the company a market capitalisation of around S$268 million. The group has seen its fair share of challenges as it is one of the few companies on the local bourse which was able to successfully penetrate the Russian market, and has been selling its proprietary MacCoffee and Petrovskaya Sloboda brands there for many years.

Investors may wonder if the group has a great business? I looked at several aspects to determine this.

Historical financials


Source: Food Empire’s Annual Report 2018

The table above shows Food Empire’s four-year financial history. Revenue has shown a steady uptrend over the last four years as a result of successful brand building and continued penetration into targeted countries. FY 2015 reported a loss mainly due to adverse foreign exchange movements, as the Russian ruble and Ukranian hryvnia weakened considerably against the US dollar due to political conflicts in both countries.

Stripping out the foreign exchange loss of around US$16.9 million in 2015, net profit would have been close to US$17 million for that year.

Free cash flow

Free cash flow (FCF) generated by the group has remained healthy over the years, despite 2015 seeing a big foreign exchange loss hitting the group’s profits. While FY 2018 saw elevated capital expenditures, FCF generated still amounted to US$4.8 million.

Dividends

As for dividends, the group suspended the payment of dividends in 2015 as the group reported a loss from foreign exchange movements. When business conditions improved again in 2016, Food Empire resumed the payment of dividends, declaring a first and final dividend of 0.60 Singapore cents. As profitability improved in 2018 compared to 2017, the dividend was raised by 13.3% to 0.68 Singapore cents. At Food Empire’s last traded price of S$0.50, the trailing dividend yield for the group was 1.4%.

A strong business with strong brands

Since its public listing in 2000, Food Empire has won numerous accolades and awards for its brands. Recently, the group ranked 58th in the Top 100 “Most Valuable Singapore Brands” by Brand Finance, where brand value increased to US$76 million. Food Empire has stayed resilient through challenges and managed to continue generating FCF, grow its bottom line, and pay higher dividends over the years. Therefore, Food Empire has a strong business in my books.

Want to keep reading and learn more from The Motley Fool? There are many important things we think every Singaporean investor should know before jumping into stock picking—and we’ve laid them all out in our eBook, which we think will help you become a Smarter, Happier and Richer investor. You can download the full e-book FREE of charge here

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.