Good afternoon 😀 First disclosure – this is strictly an informal draft of chicken scribbles and thoughts after going through some PSE disclosures by RFM Corporation , specifically their 9M2011 Results and 2010 Annual Report. I do not own any share of RFM Corporation’s shares and am strictly reading their reports only as a fundamental exercise. I love eating a lot, to my body’s demise, though I haven’t even tried the Magnum icecream even though social networks and a lot of people tweet the icecream incessantly.
RFM’s shares have risen from Php1.20 at the start of January to Php2.20 as of last April 14, 2012. Most market pundits attribute sizzling Solenn Heusaff et al, Magnum brand manager Jean Madrid , RFM CEO John Concepcion’s outstanding marketing campaign to be responsible for the skyrocketing sales whisper numbers to support the validity of the rise of the company’s stock to more than 90% for the year. So…, I guess whether for hindsight reasons or just because I definitely missed this boat’s first run up, I’m here to just try to read up on the company’s financial statements and get to learn a deeper understanding of this company. 🙂 Astonishingly, no single brokerage firm in the Philippines seems to cover this company. So, allow me to take a stab at it in a simple informal blog post. Note that I just like to blab and not make rigid market reports. As far as you can tell, this is just another market-related wannabee post.
In this photo: Magnum Brand manager Jean Madrid and Unilever- RFM CEO and managing director John Concepcion
Check these news links to see what people have been talking about / tweeting about re the icecream:
1.) April 1, 2012- Titanic ice cream gets a titanic launch
Magnum is the ultimate sensorial experience—velvety ice cream coated with real Belgian chocolate. It’s all such a hedonistic experience, really. – Tessa Prieto Valdes, Magnum Brand Ambassador
Magnum has less calories than a chocolate-chip cookie. – John Concepcion, Unilever-RFM Ice Cream CEO
Understanding the Business Model:
While Magnum sales may take the cream of the crop among some market punters’ eyes, RFM is a holding company whose businesses are around 70% food and 30% non-food. From their 2010 annual report, the businesses owned by RFM are the following:
Their more familar brands are also the following: (this is a snapshot taken from their website: http://www.rfmfoods.com)
A Few Financial Highlights and Quick Number Analyses:
1.) According to RFM, they will finish 2011 with Php504 Mil Income, higher than markets’ estimates of Php 420-430 Mil income.
An excerpt from the news clip explains the reason why RFM exceeded market forecasts:
“Selecta Ice Cream, a joint venture with world giant Unilever, is increasing its leadership of the industry with market share going beyond 71%, coming from around 66% at the start of 2011. Remarkable growth was seen in Selecta-Hersheys, Supreme, Classic and Cornetto lines, with innovations backed by strong marketing campaigns.”
“Flour-based businesses led by White King Fiesta spaghetti likewise continued to hit record sales levels, with growth close to 50%, hitting rated capacity starting September, and pushing up its recent market share in its biggest key account to 35% by yearend, from 28% in January last year.” Concepcion added.
RFM reported that aside from Selecta ice cream and Fiesta pasta, sales of Selecta milk, White King Champorado and Arroz-Caldo mixes, Sunkist litro pack and Swift Mighty Meaty and Corned Beef Swak also performed very well as the company rationalized and focused its brand portfolio, supported by more exciting product repackaging, aggressive merchandising and trade-related programs.
Here’s a snapshot of 9M2011 numbers. The FY2011 annual report hasn’t been released in the PSE nor company website yet.
One of the most important tables I’ve read in their 2010 Annual report is this contribution to revenues breakdown. Further reading in the annual report will also reveal that the ice cream segment (50-50 joint venture of RFM and Unilever under business segment URICI) contributed income of Php265 Mil on the back of Php2,746 Mil in revenues for 2010. Since the company earned roughly Php625 Mil during that year, then the ice cream and milk segment contributed roughly 265/625 or 42% of income during 2010.
2.) Gross Margins, Sales Growth, Earnings Growth Etc.
I checked the 2008-2010 annual figures and got the following:
Gross profit margin in general has went up from 21.61% in 2008 to 34.39% in 2010. 9M2011 gross margin however, fell to 26.14% though, with the 25.92% increase in direct costs and expenses from 9M2010. Company doesn’t write in their quarterly reports the reason for the rise in expenses but I will suspect that the increase in wheat prices, could have been one of the biggest culprit in the increase in those direct costs and expenses. Notice from the chart below that wheat price increased from 180/metric ton to 360/metric ton from June 2010 to June 2011. Also, Anhydrous milk fat (AMF) that RFM sources from New Zealand went up too from 4500 to 5500 but soon went down gradually to 3500 in favor of the company. Note that the flour business contributes 37% to sales revenues, while the icecream and milk business (I estimate around 16%? as around half of the 33% perhaps will be revenues from Sunkist, ready to drink juices and the Swift foods group?). Still, around 50% of the raw material expenses will be affected and highly price-sensitive with global wheat and milk prices.
3.) Notable Competitions to Consider: (Just click the image to read it thoroughly)
Reading their 2010 annual report shows that RFM is definitely more like a Spaghetti and Ice Cream Business. Most of the growth comes from their Selecta and White King Fiesta Brand. However, I really liked the fact that the company through their Interbake commisary supplies all the burger buns of McDonalds in the 260 stores of Luzon, and also supplies for Wendy’s and KFC. 😀 Pretty neat businesses.
There is roughly 3.16 Bil shares outstanding in RFM, and as of last April 14’s close of 2.20, the market capitalization of RFM is standing at approximately Php7 Bil. Now here’s where some net income forecasts stand to be of use. If this company can earn at least Php500 Mil for this year, roughly the same from 2011, then it’s priced fairly at about 14X P/E for 2012. If however, earnings rise to Php600Mil, then it’s priced at about 11.67X 2012 P/E which seems to give some valid rationale why the shares’ rise can be sustainable with the earnings. This, however, still seems to be fairly valued considering its obviously larger comparable like Universal Rubina (URC) trading just 13.96X 2012 forward P/E at the price of 64.90 (if COL EPS estimate of 4.65 is correct.)
Sigh, I’ll have to go deeper in understanding how these income forecasts are. Nevertheless, it’s been nice trying to look at this company. At least, if in the future, some opportunity arises, I can at least make a guesstimate. I still can’t believe that RFM actually traded just at Php 1.00 a couple of months ago, and more amazingly 20 centavos during 2008 and 50 centavos in 2009. See that’s why I relish reading financial statements now, in case I want to bet a huge sum in a business for quite some value propositions. 🙂
Of course, technicals help too 🙂 Ciao and have a happy summer indulging in Magnum ice cream folks.
Interestingly, I just learned that Mr. John Concepcion pala is a joint business partner in Yabu, the katsudon restaurant that opened in Megamall recently. teehee, yeah I love eating. You can check some food blogs about that katsudon craze. 😀
Read more about Yabu here: John Concepcion turns Japanese
– Faceless Trader