Freedom Foods Group Limited

FNP Details

AGM Update: Freedom Foods Group Limited (ASX: FNP) is an FMCG company that provides dairy and plant-based beverages, nutritional products, and ingredients to be used in the health & fitness industries. As per a recent update, the company’s management has held its 2021 AGM where it emphasized on its performance in FY21 and reflected on its turnaround phase.

Key Recent Updates:

• Specialty Seafood Business: The company recently announced the divestment of its Specialty Seafood business to Tempo Group. The sale of certain assets & liabilities of this business unit will provide FNP ~$3 million of gross proceeds and was completed on 12 November 2021.
• Dispute Resolution: As per a recent update, Freedom Foods Pty Limited and Blue Diamond have entered into an agreement and decided on a mutually acceptable resolution of the Arbitration, with regards to the dispute to a licence agreement to manufacture and distribute Almond Breeze products. The Settlement Agreement states that the Arbitration will be dismissed within 15 days of a long-form agreement being signed and further FFPL will have to pay Blue Diamond a total of US$ 35 million. FNP has received approval for the Settlement Agreement from its senior lenders and convertible noteholders.
• Proposal for Bank Guarantee Facility: The company has recently proposed to enter a separate bank guarantee facility of up to US$18 million. In this regard, the management is looking to divest its shares in Australia Fresh Milk Holdings Pty Ltd and apply the proceeds of the sale as security for the additional guarantee facility. The Group has received an offer for the sale from an entity related to the Company’s majority shareholder, Arrovest Pty Ltd for at least $25 million.
• Name Change: The company is soon expected to change its name to noumi Limited, pending shareholder approval.

FY21 Performance Overview:

• The company reported an uptick in revenue from continuing operations by ~8% to $559.1 million, when compared to FY20.
• Statutory loss after tax improved by ~72% to $38.8 million in FY21, compared to a loss of $136.4 million in FY20.
• FNP posted a turnaround in adjusted operating EBITDA at $22.4 million, reflecting an increase of ~141% on a loss of $54 million in the prior fiscal year.
• It ended the year with a cash position of $31.7 million and $47.9 million of undrawn facilities.

Trend in Revenue (Source: Analysis by Kalkine Group)

Q1FY22 Update:

The Group’s performance during the quarter was impacted by the re-emergence of COVID-19 outbreaks and shipping delays.

• Revenue stood at $128.9 million during the period, reflecting a decrease of 5.5% q-o-q. Dairy & Nutritional’s contributed the bulk of the revenue at $85.9 million, whereas revenue from Plant-based Beverages stood at $39.4 million. Sales from speciality seafoods grew by 46.4% q-o-q to $3.6 million.
• The company ended the quarter with a cash position of $9.8 million as of 30 September 2021. The total cash at bank and undrawn facilities stood at $45.8 million, which provides enough liquidity for business operations.

Key Risks:

• Funding Risk: The Group is prone to funding risk, given the availability of funds it requires to successfully carry on its operations.
• Legal Proceedings: The company is also subject to two class actions brought against the firm with regards to alleged breaches of the Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act and Australian Consumer Law.

Outlook: The company expects to continue the positive momentum in in FY22 as it embarks on its transformation phase. It plans to launch three new consumer propositions in the domestic pharmacy channel and will target market opportunities for its Vital Strength brand. FNP anticipates COVID-19 impact on some Q2FY22 cash receipts as well and expects to deliver positive net operating cashflow in H2FY22.

Stock Recommendation:  As per ASX, the stock of FNP is trading below its average 52-weeks’ levels of $0.180-$0.780. The stock of FNP gave a positive return of ~4.76% in the past six months and a negative return of ~8.33% in the past one month. On a TTM basis, the stock of FNP is trading at an EV/Sales multiple of 1.0x, lower than the industry median (Food & Tobacco) of 1.6x. Considering the valuation on a TTM basis & current trading levels, uptick in revenue in FY21, turnaround in operating EBITDA performance, narrowing down of net loss, resolution of legal dispute with Blue Diamond  and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.435, as on 18 November 2021, 01:00 PM (GMT+10), Sydney, Eastern Australia.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and consider associated risks of COVID-19, regulatory hurdles, and litigation cases.

FNP Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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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