The Freedom Foods Group Ltd (ASX: FNP) share price has finished the day higher at $5.20 following the release of the food company's half-year results late in the afternoon.
For the six months ended December 31, Freedom Foods delivered net sales revenue of $159.6 million and operating earnings before interest, tax, depreciation, and amortisation (EBITDA) of $16 million. This was a 29% and 28% increase, respectively, on the prior corresponding period.
According to management, this solid result reflects a positive operating performance within a period of significant change for the company. This included the completion of major capital investment programs at Ingleburn and Shepparton, the transfer of operations from the Taren Point site to Ingleburn, and its investment in expanding packaging formats and technology platforms.
The catalysts to its top line growth were its key Cereal & Snacks, Plant Based Beverages, and Dairy Beverages segments. Revenue from these segments grew 19.2%, 23%, and 30.9%, respectively, on the prior corresponding period.
On the bottom line Freedom Foods posted a statutory net profit of approximately $3 million, down 34.1 % on the prior corresponding period. This led to earnings per share of 1.6 cents for the half. The disappointing fall in net profit was due to unrealised foreign exchange losses and restructuring costs. While the total value of the provision is still being finalised, any further costs are expected to be materially less than its first-half costs.
Pleasingly, Freedom Foods generated just under $20 million in operating cash flow for the period, allowing management to declare an interim 2.25 cents per share fully franked dividend. This was an increase of 12.5% on FY 2017's interim dividend.
This result wasn't the only thing that management announced this afternoon. Freedom Foods has entered into an agreement to undertake exclusive distribution of the Crankt Protein brand. The company has an exclusive three-year distribution deal, with rights to acquire the brand based on its sales performance.
The Crankt brand has strong distribution into petrol and convenience chains, which management believes provides an opportunity for the company to expand distribution of its expanding product range into this growing channel.
Furthermore, the company announced plans to go head to head with A2 Milk Company Ltd (ASX: A2M) through the launch of Australia's Own A2 Protein Milks. This will be the only UHT A2 protein milk offering in Australian retail at the time of launch.
Outlook.
At its annual general meeting last year, management advised that it expected FY 2018 net sales revenues to be in the range of $360 to $380 million. Pleasingly, after the strong first-half performance management now expects net sales revenues to be at the higher end of this range.
Furthermore, this is expected to flow through to improved margins and increased operating EBITDA. After which, the full benefit of this growth and its capital expenditure initiatives is expected to further grow sales and earnings into FY 2019 and beyond.
Should you invest?
While Freedom Foods looks expensive based on its earnings, it looks less expensive when you judge it on its sales. At just 3x estimated FY 2018 sales, it is trading at a significant discount to consumer staples peers Bellamy's Australia Ltd (ASX: BAL) and A2 Milk Company Ltd.
If the hard work management is doing behind the scenes leads to significant margin expansion in the future, then I think Freedom Foods' earnings could soon catch up with its billion-dollar valuation.
