A short note on Super Group Ltd

Super Group has seen its share price plunge 71% from a high of 2.395 in Aug 2013 to 0.6850 on 18 Jan 2016.

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From late 2013 till today, out of the 9 quarterly earnings reports, 7 of these show a decline in profits yoy. Its profit has plunged from $18.7m (Nov 2013) to a meager $7.4m (Nov 2015), approx. 66% decline.

  1. On 11 Nov 2013, Super Group reported their third quarter earnings which showed a 17% year-on-year decline in net profits to S$18.7m. At one point, the shares were down 30.5% in the span of three days.
  2. On 24 Feb 2014, Super Group reported that net profit for the year rose 26% to S$100 million. Super Group saw its net profit for the fourth quarter rise 6 per cent to $22.6 million
  3. On 12 May 2014, Super Group reported its first quarter results which showed net profit slumped 19% year-on-year to S$18.6m partly due to higher foreign exchange gain of S$2.6 million seen last year as compared to S$0.2 million in the latest quarter
  4. On 11 Aug 2014, Super Group reported its second quarter results which showed net profit plunged 59% year on year to  to S$15 million. Due to the one-off gain that had occurred when the company sold its 35.3% interest in Sun Resources Holdings Pte Ltd in 2013.
  5. On 10 Nov 2014, Super Group reported its third quarter results which showed net profit fell 46% to $10.5 million due to a combination of cost pressure from raw materials, a higher composition of lower margin FI sales, additional cost for marketing, higher depreciation expense and the expiry of a tax incentive.
  6. On 27 Feb 2015, Super Group reported its fourth-quarter earnings for the year ended 31 December 2014 which showed  profit up by 15% at $25.9 million. There were higher sales from Southeast Asia, China, and the Commonwealth of Independent States. On the food ingredients side, sales fell by 9% year-on-year
  7. On 12 May 2015, Super Group reported its fiscal first-quarter earnings which showed  profit down a hefty 24% at $13.6 million. In the BC segment, there were lower sales in its coffee and tea sub-segments. On the FI segment, Both the non-dairy creamer product and soluble coffee product within the segment saw higher sales on a year on year basis.
  8. On 12 August 2015, Super Group reported it reported its fiscal second-quarter earnings which showed profit plunging 29% year-on-year to $11.1 million. In the BC segment,  there were lower sales in the segment’s coffee product and other product sub-segments. On the FI segment, non-dairy creamer product had particularly weak sales.
  9. On 12 Nov 2015Super Group reported its third quarter results which showed profit plunging 26% year-on-year to $7.4 million. However,  cash flow from operations came in at $11.5 million with capital expenditures clocking in around $2.4 million. In the BC segment, there were lower sales in its Coffee product and Other product sub-segments. On the FI segment, its non-dairy creamer product was particularly weak.

 

This is despite the price of coffee falling over the same period. For Super Group, coffee is its biggest input, accounting for 30% of the cost of each coffee sachet. However, somehow I don’t see how a falling coffee price is benefiting Super Group.

Analysts from Maybank Kim Eng Research estimate that for every ten percent rise in coffee prices, gross profit of Super will decrease by 3.8 percent. (read here)

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The year 2013 seems to be the turning point, when both ROE and ROIC turned south. Now ROE and ROIC are at a unremarkable level of 11.83 and 10.84 respectively.

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Oddly, despite the dropping ROE and Net Income, the free cash flow has been increasing.

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Typically, when a firm’s share price is low and free cash flow is on the rise, the odds are good that earnings and share value will soon be on the up.

However although Profit and cash-flow are related financial measurements in accounting, they are not directly linked. Profit is a measure of an company’s ongoing sustainability while cash-flow is a measure of the company’s ability to pay its bills as they become due. Or put in another way, Profit measures the profitability of the company, whereas Cash Flow measures the flow of cash in the company.

Having said that, although it provides a wealth of valuable information that investors really appreciate, FCF is not infallible. Without a regulatory standard for determining FCF, investors often disagree on exactly which items should and should not be treated as capital expenditures.

Cash Flow Vs. Income – Why It Matters to Investors (read here)

Net Income:

24 25 30 25 40 58 62 79 100 69

Cash from Operations:

22 6 5 35 66 55 57 86 66 60

Cash to Earnings Ratio:

92 24 17 140 165 95 92 109 66 87

(entire period = 89%)

singapore-loan-cash

Super Group was able to collect most (approx. 90%) of the cash they have reported as net earnings. Cash at hand is good as it allows the management to expand internal development, buy back shares, or pay a dividend. In recent times, Super Group has been buying back its shares.

 

However, moving forward, its plunging net income and earnings is still a major drag and it really depends on how the management is able to leverage on the high cash to earning ratio to achieve higher earnings per share (EPS).

 

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
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2 Responses to A short note on Super Group Ltd

  1. Pingback: Earnings report card (Part 2 of 2) | A Pen Quotes

  2. Pingback: Super Group – change for the better? | A Pen Quotes

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