The Food Revolution Group Limited

FOD Details

Managerial Changes: Food Revolution Group Limited (ASX: FOD) is engaged in production of a range of fibers, juices, wellness beverages, and supplements and markets them as branded ingredients or products to domestic and overseas customers. On 6 September 2021, FOD appointed Mr. David Marchant to the board as a Non-Executive Director. Mr. David holds extensive experience in capacity of CEO, CFO, and COO positions in an array of organisations.

FY21 Financial Performance:

• Gross Sales Revenue Sticks at Elevated Levels: FOD reported $42.01 million in sales revenue, marginally down by 0.5% PcP.
  • FY20 reported $5.6 million revenue inflow from hand sanitizer products relative to $1.2 million in FY21.
  • Beverage revenue remains resilient and growing, and reported $40.6 million, up by 13% PcP, reflecting the robustness of sales from the Original Juice Black Label brand.
• Improved EBITDA Position: Operating EBITDA stood at $1.8 million, improved by $7.3 million relative to FY20. The improvement in EBITDA position was primarily driven by a surged juice revenue and curtailed procurement, operational & administration expenses.
• Cash Position: As of 30 June 2021, FOD registered $4.41 million in cash and cash equivalents, up from $2.94 million as of 30 June 2020. Major contributing factors were reduced investing activities and higher financing activities.

Source: Company Report, Analysis by Kalkine Group

Key Risks and Challenges

• Financial Risks: FOD has interest rate bearing liabilities that may incline depending upon interest rate fluctuations. In addition, availing finance facility at a cost-effective interest rate is crucial for FOD to keep a margin for equity shareholders.
• Potential Supply Chain Disruptions: Considering overseas operations, any disruption in logistics may significantly impact FOD’s distribution and marketing causing sales decline.

Outlook

• Improving Terms: FOD has attained significant bargaining position and negotiated for price increases. Additionally, FOD is fully inclined towards improving its trading terms across the client base.
• Operational Developments: FOD successfully floated juice lab wellness shots into the market. Operational improvements were realized of over $1.1 million, in line with ongoing focus on logistics and process streamlining to deliver cost efficiency.

Stock Recommendation: The stock of FOD gave a negative return of ~37.500% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.024 - $0.049. On TTM basis, the stock of FOD is trading at an EV/Sales multiple of 1.01x, lower than the industry median (Food & Tobacco) median of 1.64x, implying undervaluation. Considering the current trading level, performance from beverage segment, progress in wellness shot segment, valuation on a TTM basis, and associated logistics and financial risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.025, down by ~3.847% as of 10 September 2021.

FOD Daily Technical Chart, Data Source: REFINITIV

 Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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