Freedom Foods Group Limited

 

FNP Details
 
Suspension from official quotation: Freedom Foods Group Limited (ASX: FNP) is involved in sourcing, manufacturing, selling, marketing, and distribution of specialty cereal and snacks and plant and dairy beverages. FNP has been temporarily suspended from quotation because of the pending release of an announcement regarding the outcome of further investigations in relation to its financial position. The company expects that it will seek to end its voluntary suspension on reaching a resolution related to its financial position. 
 
Writing Down of Inventory: On consolidating warehouses, the company also reviewed its inventory levels. It is likely to make one-off non-cash write-down of $60 million for obsolete stock, out-of-date stock, and product withdrawals. According to the management, these issues are not likely to impact its current operational performance. According to the recent conference call, one of the analysts put question pertaining to fraud activity and to that management failed to give a satisfactory answer on the pretext that investigation is going on. If it comes to the light, then it will be made available to the public. It further added the company operates at the highest level of integrity and operational performance. 
 
On 25 June 2020, the company provided a corporate update wherein it informed that it is witnessing increasing demand and customer enquiry across its key brands and markets with an emphasis on dairy, nutritionals, and plant beverages. The company has also restructured its syndicated and bilateral banking facilities, which will provide a more flexible structure to accommodate changes in sales and inventory mix in the current environment.
 
H1FY20 Results Highlights: In H1FY20, the company reported total net sales of $277.1 million, up 32.6% on the previous corresponding period (pcp), driven by the growth achieved in key branded categories and channels. Further, the company reported operating net profit of $9.1 million, up 42.1% on pcp. For the period, the company declared an interim dividend of 2.25 cents per share (unfranked), however, the dividend was cancelled due to the uncertainty surrounding the Covid-19.

H1FY20 results (Source: Company Reports)
 
Key Risks: The company’s activities are exposed to the financial risk such as fluctuation in foreign currency exchange rates and interest rate related risks. On 29 May 2020, the company had provided an update wherein it informed that it is expected that its full-year earnings result will be materially impacted by COVID 19 issues. 
 
Stock Update: The company expects its FY20 total capital expenditure to be in between $120 million-$130 million, with a materially reduced capital expenditure program in FY2021. Over the last six months, the stock of FNP corrected by 41.21% on ASX. For H1FY20, the company’s gross margin came in at 27.1%, up 2.4% on pcp. In 1HFY20, current ratio stood at 1.37x with a debt-to-equity ratio of 0.48x. The company’s shares are currently temporarily suspended on ASX. The stock of FNP last traded at $3.010 per share with the market capitalisation of ~$834.10 million.


FNP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 
 

Retail Food Group Limited

 

RFG Details
 
Business Update:Retail Food Group Limited (ASX: RFG) is a global food and beverage company with a market capitalisation of ~$129.2 million. Effective from 22 June 2020, RFG is included in S&P All Ordinaries index. On 26 June 2020, the company provided a business update wherein it informed that following the ease in the Covid-19 restriction, the company has been witnessing an increased number of customers within shopping centres. Further, traction had also been observed in terms of rental relief for franchisees, with concessions now having been obtained in respect of c.415 outlets. Currently, around 138 international outlets have been closed, 30 of which closed permanently, around 150 are operating with limited ‘dine-in’, and a further c.230 on a ‘takeaway’ only basis.
 
H1FY20 Results Highlights:For H1FY20, the company reported an underlying EBITDA of $31.7 million and an underlying NPAT of $9.3 million. During the half-year, the company’s operating performance was influenced by the ongoing stabilisation of franchise operations and margin reduction in manufacturing operations. At the end of half-year, the company had net debt of $33.7 million. 
 

H1FY20 Results (Source: Company Reports)
 
FY20 Guidance:In an update provided on 26 June 2020, the company informed that its FY20 underlying EBITDA is expected to be around $35 million, assuming full-year contributions from all continuing operations, but excluding the impact of AASB15 and AASB16. Further, the company expects net debt to be around $25 million, as at 30 June 2020.
 
Key Risks: The company is exposed to market risk including currency risk, fair value interest rate risk and price risk. Further, the company is also exposed to credit risk, liquidity risk and cash flow interest rate risk.
 
Stock Recommendation: The stock of RFG has corrected by 41.9% over the last six months, and is inclined towards its 52 weeks low price, offering a decent opportunity for accumulation. For H1FY20, the company’s net margin stood at 17.9%, higher than the industry median of 7.7%.                The company’s stock is trading at EV/Sales multiple of 1.6x, lower than the industry average (Consumer Cyclicals) of 3.7x, on TTM basis. Further, the stock is trading at EV/EBITDA multiple of 7.9x, lower than the industry average of 15.4x, demonstrating that the stock is undervalued. Considering the aforesaid facts, the recent growth in customers, the company’s FY20 guidance, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.071, up by 16.393% on 26 June 2020, owing to the release of the recent trading update and FY20 guidance. 

 
RFG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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