2014年11月18日星期二

转自Foolish Bottom Line 兄的好贴,感谢他的功课--Super Group versus Power Root Berhad

Foolish Face-Off: Super Group versus Power Root Berhad

Two instant coffee makers slugging it out.

boxing gloves
The Foolish Face-Off series pits two businesses that are similar in nature against each other. In this latest instalment, we will let Singapore-listed Super Group(SGX: S10) and Malaysia-listed Power Root Berhad tussle it out in the ring to see which company emerges victorious.
Introducing the contenders
Super Group is an integrated instant food and beverage (F&B) brand owner that operates in two main business segments – Branded Consumer and Food Ingredients. The former entails the sale of instant coffee mixes, instant tea, and cereals, under brands such as SuperOwl, and NutreMill. The latter is involved in manufacturing various types of beverage-ingredients like non-dairy creamer and soluble coffee powder for sale to other beverage manufacturers.
Super’s contender, Power Root, mainly manufactures and distributes coffee and tea products, energy drinks, and cereal drinks, among others. Some of its famous brands include Alicafe and Ah Huat.
Super GroupPower Root
Market CapitalisationS$1.65 billionRM681 million
Revenue (last 12 months)S$549 millionRM307 million
Source: S&P Capital IQ
Round 1: Profitability
The first round looks at the profitability of the companies in terms of their profit margins and Return on Equity (ROE). In particular, the latter shows how efficient a company’s management is in turning every dollar of shareholders’ capital into actual profits.
Super GroupPower Root
Gross margin*37.7%58.7%
Net margin*17.4%12.5%
Return on equity* (ROE)21.0%18.5%
*Based on last 12 months’ financial figures
Source: S&P Capital IQ
For every dollar of revenue earned by Super, 17.4 cents is converted into profit while for its competitor, every ringgit of revenue only becomes 12.5 sen in profit. Super also has a higher ROE as compared to Power Root. However, Power Root has higher gross margin than Super; this shows that the management of Power Root is able to keep its costs for raw materials low.
With Super winning in two out of three aspects, it is the winner in this round.
Winner: Super
Round 2: Growth
In this round, we will delve into some numbers that concern the growth of the two F&B firms for the past five years at a compounded annual growth rate (CAGR) basis. In the long-term, companies that can grow their sales and profits steadily over time should also see their intrinsic value increase in tandem.
Super GroupPower Root
Revenue CAGR*13.2%17.2%
Earnings per share (EPS) CAGR*31.1%31.8%
Dividend CAGR*41.3%24.6%
*Based on each company’s figures for their last five completed financial years; CAGR stands for Compounded Annual Growth Rate
Source: S&P Capital IQ
Power Root grew its earnings per share at a clip of 31.8% per year for its past five completed financial years. Meanwhile, Super is no slouch either as its EPS growth is just a hair’s breadth slower at 31.1% per annum during the same period. On the dividends front, Super’s shareholders were rewarded more handsomely as compared to Power Root’s.
With two out of three aspects in Power Root’s favour, the winner is obvious.
Winner: Power Root
Round 3: Valuation
Billionaire investor Warren Buffett once quipped that price does not equate to value as looking at the absolute price of a share tell us nothing about the value of its underlying business. Because of that, we want to look at a share’s valuation. Here’re the two companies’ price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield.
Super GroupPower Root
Price-to-earnings (PE) ratio*17.317.5
Price-to-sales (PS) ratio*3.02.2
Dividend yield**3.0%4.2%
Share priceS$1.47RM2.16
*Based on financial figures for the last 12 months
**Based on current share price and dividends for last-completed financial year
Source: S&P Capital IQ
Since Power Root has a lower PS ratio and higher dividend yield as compared to Super, it seems to be at a better value than the latter.
Winner: Power Root
Foolish Bottom Line
Final Score: 2-1 to Power Root!
Overall, the winner in the friendly mano-a-mano is Power Root as it has shown better growth and is actually selling for a lower valuation.
But before you rush to buy shares of Power Root, you also have to delve into other important aspects of the two F&B outfits such as the strength of their balance sheet  and their respective cash flow situations. We have also not looked into the companies’ management and their management track record. This Foolish Face-Off just serves as a direction in the right path.