Consumer Staples - The new favourites among investors

  • Mar 11, 2020 AEDT
  • Team Kalkine
Consumer Staples - The new favourites among investors

Amid coronavirus concerns which is hammering several sector stocks around the globe, there exist  few sectors which have a bare minimal or negligible impact. One such sector is Consumer Staples, which includes necessary daily items ranging from soda to shaving cream.

Such essentiality produces all the more reason that consumer staples would continue witnessing an upward trend in its stock performance regardless of prevailing economic situations. Thus, Consumer staples is an evergreen sector for the investment purpose.

The S&P/ASX 200 Consumer Staples Index (XSJ) includes those businesses which are less sensitive to economic cycles. The sector entails manufacturing and distribution of tobacco, food, and beverages; producers of personal products & non-durable household goods; consumer super centers and   hypermarkets as well as drug and food retailing companies.

Also Read: Consumer Discretionary vs Staples - FLT, APE, CGC, RFG

Let’s have a look at 5 consumer staple companies operating in different segments and witnessing their financial performance and degree of coronavirus impact on their outlook.

Freedom Foods Group Limited (ASX: FNP)

Freedom Foods Group Limited (ASX: FNP) is into the business of producing nutritious food & beverages. The Company specialises in rice milks, soy and breakfast drinks.

FNP’s Skyrocketing results with robust plans for future: The Company has delivered positive results in its half year 2020 ended on 31 December 2019.

  • Net sales recorded at $299.7 million, an upsurge of $90.7 million or 43.4 percent on pcp.
  • Operating EBDITA grew at 55.6 percent or $11.7 million on prior year, to attain the earning of $32.7 million.
  • Gross margins increased to 27.1 percent from 24.7 percent on prior year.
  • Operating NPAT rose by 42.1 percent to $9.1 million.
  • Statutory net profit increased by 45.6 percent to $5.4 million.
  • An Unfranked interim dividend of 2.25 cents per share

The exponential increase in several attributes including net sales, EBITDA and others, own to the following activities undertaken by the Company in the stint of six months.

  • The Company has successfully launched 40 new product formats.
  • The capacity of milking cows has increased from 3,500 to 8,000
  • Increase in Nutritional Facility
    • Specialised nutritional ingredients such as Micellar Casein, Lactoferrin and Whey Protein Isolate were launched
    • As a way forward, the Company would expand the capacity for Lactoferrin to 40 tonnes from July 2020 in order to meet the contracted requirements into 2021
  • In Shepparton UHT Facility, the Company has made the following changes:
    • Upgrade to double total processing capacity to reach 500 million litres per annum
    • Processed volume was increased to 150 million litres from 107 million litres (in HY 2019)
    • An estimate for FY2020 is to reach a volume of 500 million litres with an increase of 350 million processed litres.
  • Update on Shepparton Solar Project:
    • For the carbon offset for this project, it is equivalent to 1,700 trees being planted or it is more than 5,000 tonnes of CO2.
    • The largest on roof solar battery project located in Victoria is likely to be completed in early 2020.
    • FNP mentions that the solar battery and panel project would start at Ingleburn in late FY 2020.

Outlook:

  • Plans for FY 2020 to launch additional new plant for plant-based beverages and coffee
  • Regarding milk supply, it is likely to be 400 million litres in FY20 and nearly 430 – 440 million litres in FY21

Elders Limited (ASX: ELD)

Elders Limited (ASX: ELD) was founded in 1839 and focused on being a pure agribusiness within Australia and internationally.

Update on Bushfire impact:

On 9 March 2020, the Company provided an update on the impact of bushfire on the Company’s operational and financial aspect, which is as follows.

  • The Company confirms that the trading in the 1Q FY2020 was in line with its expectations.
  • All branches of the Company are open and operational and there was no damage to property.
  • ELD has donated $100,000 to the Foundation for Rural and Regional Renewal to provide on-ground support.

Outlook:

In the FY2019 Annual report, for the period ended 30 September 2019, the Company mentions about the optimistic outlook for FY 2020. The Company is very confident that FY 2020 results would align with their commitments. While taking a 3-year average, ROC comes out to be 22.8 percent which is well above the set target. Also, Elders has a stringent focus to maintain its capital management.

ELD recent acquisition of AIRR, wholesale business, will help have significant contribution in earnings in the coming year.

It cites that the target of 5-10 percent growth in underlying earning as mentioned in Eight Point Plan in on track.

GrainCorp Limited (ASX: GNC)

GrainCorp Limited (ASX: GNC) has operations in oilseeds and grains in  Australia, China, Canada, Germany, New Zealand, UK, India, and Ukraine.

Outlook:

  • The Company is confident of the continued high capacity utilisation of its malt plants. In FY 2020, the prime focus of the Malt business is the optimisation of the distribution network and warehousing.
  • GNC will get a total gross payment of around $57.9 million in FY20, subject to its submission to White Rock Insurance (a subsidiary of Aon)
  • 90 percent of the payment is likely to come in March 2020.
  • The remaining amount is expected to be paid in second half of FY 2020.

 

  • The Company has a bigger canola supply, and an upgradation in meal and oil values which will lead to improved crush margins in FY 2020.
  • Import of grains (trans-shipments) from VIC and WA into GrainCorp ports shall continue.
  • GrainCrop mentions that the new rail contacts would be effective for FY20
  • Diversification of grain origination to continue through GrainsConnect Canada and Ukraine.

Also Read: Latest from the Consumer Staples – COL, AHY, GNC

Blackmores Limited (ASX: BKL)

Blackmores Limited (ASX: BKL), founded by Maurice Blackmore, is Australia’s natural health company . BKL create products and services based on their expertise in minerals, vitamins, nutrients and herbs.

BKL sets the course for sustainable growth:

The Company had recently released its first half year results of FY 2020 for the period ended 31 December 2019 and mentions the business improvement plan which is as follows.

  • In CY 2019, the Company achieved cost savings of $16 million from efficiencies in operations, marketing, managing people costs and Research & Development.
  • Reinvestment of $5 million is linked to IT infrastructure
  • To upgrade the talent in specific functions across the organisation
  • Nearly half of the benefits would be reinvested in some of the important areas of focus
  • BKL intends to remain focused on cutting the cost and to work on the identified initiatives to make $50 million in annualised gross EBITDA benefits from 2023.

Outlook:

The Company mentions that it expects the revenue in 2H FY2020 to be similar to 1H FY2020.

FY 2020 result would see a material impact on costs associated with manufacturing and other factors such as Coronavirus. Despite the issues faced in the 2H period, the new management team and Board are optimistic about the BKL’s future.

  • Full-year NPAT is anticipated to lie in the range of $17 - $21 million.
  • With the addition of new management, the Company would build on its strategic revenue management to help stabalise prices across markets. .

Bubs Australia Limited (ASX: BUB)

Bubs Australia Limited (ASX: BUB) was founded in Sydney in 2006 and is into the business of providing a wide variety of infant nutrition products. The products are widely available throughout Australia and exported to the Middle East, China and South East Asia.

In the recently released interim HY2020 results for the period ended on 31 December 2019, following is the strategic outlook of the Company.

  • In 2H FY2020, a more robust forecasted demand across all distribution Channels for infant formula is anticipated.
  • The Company expects sales growth in different segment and regions in the second half of FY2020.
  • To diversify revenue streams, BUB has plans to further develop Bubs® penetration into APAC
  • The Company have a continuous focus on improving profit margins and capital management.
  • It is expected to witness growth in the 2H FY2020 from the newly established distribution partnerships for Bubs® products in Hong Kong (WeMe eCommerce Solutions) and Vietnam (Vietnam TVV Services).
  • The Company explains that the new Woolworths agreement would generate a platform to increase market share in a larger segment of organic bovine formula.

 


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