HVA Foods brews impressive turnaround

• First half net profit up 411% to 25.5 m; revenue by 23% to Rs. 367.3 m
  
   

Often flagged as junk or speculative stock by some, HVA Foods Plc’s first half results are likely to silence critics as the company has produced an impressive turnaround.

For the first six months ended on 30 September 2012, HVA has achieved a net profit of Rs. 25.5 million, up by 411% from a lower base of Rs. 5 million a year earlier. Group profit before tax was Rs. 26.4 million, as against Rs. 5.3 million in the first half of FY12.

In full FY12, HVA’s net profit was Rs. 10.2 million, down by 78% over Rs. 46.4 million in the financial year ended on 31 March 2011.

According to analysts at John Keells Stock Brokers, strong top line growth coupled with healthy margin at the gross and operating level offset sharply higher finance costs, resulted in strong earnings growth at HVA in the first half of current financial year.

The improved bottom line was aided by a 22.7% growth in revenue to Rs. 367.3 million whilst gross profit had risen by 119% to Rs. 66.6 million. Other operating income of Rs. 28.4 million has also helped. In the first half of FY12, other operating income amounted to Rs. 22.6 million.

HVA contained distribution expenses growth to 10% to Rs. 12.4 million, whilst administrative expenses rose by 43% to Rs. 50.7 million. Results from operating activities saw a 402% growth to Rs. 32 million.

 The company’s net finance costs was a negative Rs. 5.5 million, up from Rs. 1 million in the first half of last financial year. Finance costs rose by 50% to Rs. 15 million whilst finance income grew by 5.5% to Rs. 9.5 million.

HVA’s annualised EPS is Rs. 0.77 whilst Price Earnings Ratio (on annualised EPS) is 18.47 times. Market PE is around 15 times. HVA closed last week at Rs. 14.20, up by 40 cents whilst its 52-week highest was Rs. 44.40 and the lowest was Rs. 8.70. In 2011, its highest was Rs. 82.50, and the rise prompted some, including former capital market regulators, to include HVA among stocks which were subject to pump and dump or speculation.  

Analysts opined that based on eventual performance in FY12, the high price fetched by HVA could be described as unwarranted. The trailing PE of 92 times confirmed this view. The fact remains that HVA in FY12, suffered a sharp drop in profit by 78% over the previous year despite revenue increasing by 32% to Rs. 741 million. The food and beverage sector’s trailing PE was 14 times.

Others however noted it was on perceptions and future potential. If HVA manages to maintain the momentum achieved so far during the second half, it is likely FY13 will be best. It has achieved nearly 50% of FY12’s turnover whilst posting over half of FY11’s net profit.

Total equity is nearly Rs. 500 million as at 30 September 2012, up from Rs. 469 million a year earlier and Rs. 471.5 million by end FY12. Retained earnings included Rs. 16 million, as against a loss of Rs. 9.6 million by end FY12.

Group assets amounted to Rs. 906.5 million, down from Rs. 938 million by end FY12 but higher as opposed to Rs. 891 million in September 2011.

Noncurrent liabilities have been reduced to Rs. 83 million from Rs. 95 million a year earlier whilst current liabilities amounted to Rs. 326 million, down from Rs. 327 million in September 2011.

The biggest chunk is interest bearing loans and borrowings of Rs. 223 million. HVA has reduced the debt to equity ratio from 93% as at March 2012 to 75% by end-September.