Freedom Foods Group Ltd

FNP Details
Establishing a new company to expand Australia’s Own brand: Freedom Foods Group Ltd (ASX: FNP) has entered into a memorandum of understanding with the Guangzhou based partner, Shenzhen JiaLiLe Food Co. Ltd (JLL), to establish a new company to expand the Australia’s Own (AO) brand as a leading high quality imported brand of choice for Children’s Nutrition in China. After the finalization of definitive documentation, the proposed AO China entity is expected to be in operation from early 2017. However, FNP’s gross profit margins has fallen from 36.2% in 2015 to 29.7% in 2016. Moreover, FNP stock rose 30.86% in the last six months (as of November 01, 2016) placing them at higher levels while the stock has a low dividend yield. The group will hold its AGM on November 24, 2016. We give an “Expensive” recommendation on the stock at the current price of $ 4.43

 
FNP Daily Chart (Source: Thomson Reuters)

a2 Milk Company Ltd

A2M Details
Loss to Profit and international growth: a2 Milk Company Ltd (Australia) (ASX: A2M) has reported the revenue growth of 127.4% to $352.8 million in FY 16 over the prior corresponding period (pcp). The net profit after tax is of $30.4 million, as compared with a net loss after tax of $2.1 million in the pcp. The group Operating EBITDA before non-recurring items is of $54.6 million, which grew from $4.8 million on the pcp. In addition, there is an exceptional growth in sales of a2 Platinum infant formula in Australia & New Zealand (ANZ) and China, with the total revenue of $214.4 million, which is up 414% on pcp. The group is progressing with their plans for the New Zealand liquid milk market after the expiry of the last remaining nonexclusive license with Fresha Valley in May 2017. A2M is well placed to meet any changes to regulations in China.

 

FY 16 Financial Performance (Source: Company Reports)
 
In addition, A2M has increased its overall investment in the international growth and brand development from $15.2 million in the FY 15 to $20.5 million, which is in line with the strategy of expansion into target markets. We give a “Hold” recommendation on the stock at the current price of $ 1.74

 
A2M Daily Chart (Source: Thomson Reuters)

Bega Cheese Ltd

BGA Details
Rising competition could hurt the stock sentiment: Bega Cheese Ltd.’s (ASX: BGA) stock has fallen about 2.3% on November 02, 2016 while the group responded to the ASX Aware letter clarifying the two aspects related to ‘Statement’ identified from the Chairman’s address at AGM. The aspects relate to general observations of formula market in Australia and China, and the decision by the BGA board to take a provision of about $5-7 million on inventory representing BGA’s share of the Bemore partnership owing to slower sales in prevailing market conditions. BGA otherwise reported a revenue growth of 7.5% to $1.2 billion in FY 16. But the group generated a 132% increase in the profit after tax to $28.8 million (normalized increased 33% to $29.2 million) while produced 238,000 tonnes of dairy products in FY 16, which is a 6% increase on the previous year. On the other hand, the softening in demand in China, coupled with sanctions in Russia and a highly competitive Australian market has created a very challenging operating environment for some dairy companies. Therefore, the two large dairy companies have announced retrospective price cuts to their dairy farmer suppliers.

 

FY 16 Financial Performance (Normalised) (Source: Company Reports)
 
BGA stock is trading at a high P/E despite the recent fall in prices. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $ 4.73

 
BGA Daily Chart (Source: Thomson Reuters)

Warrnambool Cheese and Butter Factory Company Holdings Ltd

WCB Details
Boosting capital position: Warrnambool Cheese and Butter Factory Company Holdings Ltd (ASX: WCB) has raised $142 million at $6.75 per share through the pro-rata renounceable entitlement offer. On the other hand, the Australian Government takeover panel has declined to conduct proceedings on an application dated June 27, 2016 from Sandon Capital Investments Limited in relation to the affairs of WCB. In addition, the entitlement offer booklet is deficient as it fails to disclose Saputo Dairy’s intends to hold 90% or more of WCB after the entitlement. The group reported a drop of 87.8% in FY16 net operating profit after tax. WCB stock fell 23.2% in the last six months (as of November 01, 2016); but given the limited growth prospects foreseen as of now, we give an “Expensive” recommendation on the stock at the current price of $ 6.51

 
WCB Daily Chart (Source: Thomson Reuters)

Select Harvests Ltd

SHV Details
Combination of currency and price caused the sharpest correction: Select Harvests Limited (ASX: SHV) is set to hold its AGM on November 25, 2016. The group has been under pressure owing to drought conditions in the US and the impact of the drought remains difficult to predict. US will experience a greater cost inflation (water, by-products & labor). Moreover, the combination of currency and price has caused the sharpest price correction.

 

FY 16 Financial Performance (Source: Company Reports)
 
Additionally, SHV has reported a FY16 Net Profit after Tax (NPAT) of $33.8m and the underlying Net Profit after Tax (NPAT) of $27.9 million, which is down from $59.4 million in FY 15. The underlying earnings per Share (EPS) is 38.5 cents per share as compared to FY15 EPS of 86.8 cps. We believe that the stock is “Expensive” at the current price of $ 6.06

 
SHV Daily Chart (Source: Thomson Reuters)

Costa Group Holdings Ltd

CGC Details
Exceeded prospectus forecast earnings in FY16: Costa Group Holdings Ltd (ASX: CGC) is holding its AGM on November 17, 2016. CGC has exceeded prospectus forecast earnings in FY 16 while the revenue and transacted sales exceeded the prospectus forecast by 9.6% and 6.5%, respectively. The stronger citrus and mushroom sales outweighed the impact from lower tomato and banana pricing. The transacted sales exceeded $1 billion for the first time. The revenue growth across the core produce categories was 18.7% and the pro forma revenue grew 11.8% to $809.0 million on FY2015.
 Moreover, the pro forma NPAT grew 29.7% to $49.3m and the statutory NPAT is of $25.3m. Additionally, CGC is expecting NPAT (pre-SGARA) growth at over 10% for FY2017. We give a “Buy” recommendation on the stock at the current price of $ 2.80


CGC Daily Chart (Source: Thomson Reuters)

Bellamy’s Australia Ltd

BAL Details
Growth in China’s revenue reiterates positive sentiment: Bellamy's Australia Ltd (ASX: BAL) has reported an EBIT growth of 342% to $54.3 million in FY 16, while the revenue grew 95% to $245 million in which China’s revenues surged 331%.  The EBIT margin has more than doubled from 10% in FY15 to 22% in FY16. Moreover, BAL is also focusing on cost management to address the rising costs of their business infrastructure wherein the head count has increased by 50%.

 

Shareholder value (Source: Company Reports)
 
BAL in FY 17 will increase the manufacturing volume which would enhance the inventory build for growth in existing and new markets. Additionally, BAL is focusing on the overall growth strategy and international opportunities. BAL stock rose 7.98% in the last six months (as of November 01, 2016), while we give a “Hold” recommendation on the stock at the current price of $ 11.29 

 
BAL Daily Chart (Source: Thomson Reuters)

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