Since our sell call a month ago, Petra Foods’ share price has fallen by as much as 17.9% before recovering to close about 7% lower. Although the outlook is still challenging for Petra – the World Bank recently trimmed its forecast for Indonesia’s economic growth this year to 5.9% from 6.2% previously – we believe that the sell-offs are about done and Petra is fairly valued at this point. Ahead of its 2Q13 results release, we upgrade Petra to HOLD on valuation grounds, with an unchanged fair value estimate of S$3.88. Investors should also expect a larger than expected loss from the divested cocoa ingredients segment in 2Q13.
Sale concluded
Petra Foods concluded the sale of its entire Cocoa Ingredients division to Barry Callebaut. However, the estimated sales proceeds were lowered by US$74m to US$860m following a reduced level of working capital for the division on the handover date (30 Jun). As for the final net proceeds, the amount will only be determined after factoring adjustments related to the repayment of loans. Nonetheless, management has taken the pre-emptive step of tempering investor expectations with regards to a special dividend.
Outlook remains challenging
This development aside, the World Bank recently trimmed its forecast for Indonesia’s economic growth this year to 5.9% from 6.2% previously. It cited the increase in subsidized fuel prices as one of the catalysts for possibly derailing consumption patterns in the country. This outlook corresponds to our own view as stated in our 5 Jun report, where we highlighted the same cause possibly triggering a drop-off in consumer spending, which may adversely affect the QoQ growth figures for Petra’s Branded Consumer division. If our view is proven correct, this slowdown should become more apparent in its 3Q13 results (the increase in subsidized fuel prices was only enacted in late Jun). As for its upcoming 2Q13 results, Petra is likely to record a final loss from the divested cocoa ingredients segment, which may be higher than the street had anticipated.
Sell-offs about done; counter should stabilize for now
Since our sell call a month ago, Petra Foods’ share price has fallen by as much as 17.9% before recovering to close about 7% lower. Although the outlook is still challenging for Petra, we believe that the sell-offs are about done and Petra is fairly valued at this point. Ahead of its 2Q13 results release, we upgrade Petra to HOLD on valuation grounds, with an unchanged fair value estimate of S$3.88.
Petra Foods concluded the sale of its entire Cocoa Ingredients division to Barry Callebaut. However, the estimated sales proceeds were lowered by US$74m to US$860m following a reduced level of working capital for the division on the handover date (30 Jun). As for the final net proceeds, the amount will only be determined after factoring adjustments related to the repayment of loans. Nonetheless, management has taken the pre-emptive step of tempering investor expectations with regards to a special dividend.
Outlook remains challenging
This development aside, the World Bank recently trimmed its forecast for Indonesia’s economic growth this year to 5.9% from 6.2% previously. It cited the increase in subsidized fuel prices as one of the catalysts for possibly derailing consumption patterns in the country. This outlook corresponds to our own view as stated in our 5 Jun report, where we highlighted the same cause possibly triggering a drop-off in consumer spending, which may adversely affect the QoQ growth figures for Petra’s Branded Consumer division. If our view is proven correct, this slowdown should become more apparent in its 3Q13 results (the increase in subsidized fuel prices was only enacted in late Jun). As for its upcoming 2Q13 results, Petra is likely to record a final loss from the divested cocoa ingredients segment, which may be higher than the street had anticipated.
Sell-offs about done; counter should stabilize for now
Since our sell call a month ago, Petra Foods’ share price has fallen by as much as 17.9% before recovering to close about 7% lower. Although the outlook is still challenging for Petra, we believe that the sell-offs are about done and Petra is fairly valued at this point. Ahead of its 2Q13 results release, we upgrade Petra to HOLD on valuation grounds, with an unchanged fair value estimate of S$3.88.
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