Over the past 12 months, the share price of instant beverages maker Food Empire Holdings Limited (SGX: F03) has gained 102% to S$0.425 currently. What gives?
Before I dig into some of the possible reasons, lets first have a brief understanding of Food Empire’s business for some context later. The company is a food and beverage (F& brand owner and it predominantly manufactures instant beverage products, such as instant coffee.
While Food Empire’s products are found in more than 60 countries, Eastern Europe is the most important geographical market for the company; in fact, Russia and Ukraine are the company’s two largest revenue sources.
With that, let’s dig into the possible reasons behind the strong showing in Food Empire’s shares in the past year:
1. Recent improvement in results
As already mentioned, Food Empire counts Russia and Ukraine as its key geographical markets. The past few years has seen the two countries embroiled in a geopolitical conflict and this has placed Food Empire’s business under immense pressure.
In 2014 and 2015, the company saw its revenues decline by 5% and 7%, respectively. It also clocked losses in both years.
But, Food Empire has seen improvements in its business of late. In the third-quarter of 2016, its revenue stepped up by 10.7% to US$68.2 million while its net profit attributable to shareholders soared 782% to US$5.8 million. There was a hefty foreign-exchange-related loss of US$6.3 million in the third-quarter of 2015, which pressured the bottom-line then.
2. Alignment of interests between management and shareholders
Sudeep Nair has been Food Empire’s chief executive since October 2012. On 22 November, he bought 2.5 million shares of the company for S$1.08 million, pushing his total ownership stake in Food Empire to 46.99 million shares, or 8.82% of the total shares outstanding.
Nair, who is in his mid-40s, has spent half of his life living in Russia. It is likely that he has intimate knowledge of the Russian market.
3. Emergence of different growth prospects
The Russia-Ukraine conflict caused Food Empire’s business to be buffeted by currency and economic volatility. The company is currently exploring a few growth initiatives to diversify its revenue base and here are some examples:
a) Food Empire has launched its own coffee-capsules that are compatible with Nespresso coffee-capsule systems.
b) The company has started to place more emphasis on growing its business in regions outside of Eastern Europe, such as in Indochina.
c) Food Empire has formed a joint venture with Indonesia’s Salim Group to make an investment into South Korean coffee chain Caffe Bene. It represents a venture into food & beverage retail for Food Empire.
While there are positive things going on with Food Empire right now, only time will tell if the company can sustain growth in its business in the years ahead.