Freedom Foods - FY14 result

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
03 September 2014, 3:28 PM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

FNP reported solid earnings growth in FY14. We expect FNP to generate strong profit growth over the next few years from:

  1. its brands gaining further traction
  2. increased volumes and fixed cost leverage from additional capacity at both Freedom Foods and Pactum
  3. expansion in the US, China and South East Asia

Solid FY14 result

FY14 underlying EBITDA was 4% below our forecast, while NPAT was 19% above due to a lower than expected tax rate of only 4%.

Despite the EBITDA miss, it was still a solid year for FNP with earnings increasing 44%.

The strong growth in key operating margins was the highlight of the result, with the GP margin increasing to 39.5% vs 31.9% and the EBITDA margin was 18.2% vs 12.6% the pcp.

Strong growth outlook

In FY15, we forecast underlying profit to rise 19.7% to A$14.5m. Profit growth is less than EBITDA growth of 31.4% due to a higher tax rate (was assume 21% vs 4% in FY14).

Hold recommendation

We continue to have a positive view on FNP's prospects over the next few years due to the strong organic growth opportunities it derives from leverage to high-growth sectors in the healthy and allergen free food and beverage industry.

Purely on valuation grounds, we must move to a Hold recommendation and a new price target of A$3.10.

More information

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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