Food Empire

(07-10-2019, 12:50 PM)donmihaihai Wrote:

(07-10-2019, 10:25 AM)Squirrel Wrote: Anybody with perceived risks or comments on this company? Seeing the lack of responses on this company is exciting. Its a real possibility the company is being overlooked!

Co. Not interested by this forum is a good start.

FE is a showcase of ‘brand doesn’t travel well’. You need a lot of extra( start with $$) to enter new market( country). Investing in FE is about investing in the future of these countries. Never change since listed.

Currency risk. If RUR down by 50%. Earning will down by 50% if revenues and cost are both in RUR. Earning become smaller and it headquarter cost are in sgd. all these won’t appear in forex gain/loss because of accounting. What shown in the ar is for the net forex risk sitting on b/s only.

Hi donmihaihai,

In my humble opinion, if what you speak of really happens during a crisis whereby RUR is devalued and halved, the corresponding PL reduces by 50%, that would actually be a great result! The 2018 PL allocated to Russia + Ukraine is US$16.5m. Even if that gets halved, you would see a reduction of $8.25m. Take that off the TTM PL of USD21.443m, USD13.193m would still give us a 15 P/E ratio. That still just means that the company is fairly valued against industry comparable that was mentioned during the Super Group take private circular. That's a pretty good outcome for a crisis.

What's scary was that during 2014 and 2015, Russia and Ukraine segment business dipped into the red with the devaluation, with not enough "natural hedges" in place. Hopefully the management has learnt their lesson in this area.

Good -
Strong brand in Russia with pricing power
has diversified much since Russia/Ukraine crisis.
Establishing themselves in IndoChina
Good dynamics of CEO and chairman
Expanding into ingredient business.

Bad -
forex,
Low margin
Doing business in challenging environment

Vested

(07-10-2019, 03:18 PM)Squirrel Wrote:

(07-10-2019, 12:50 PM)donmihaihai Wrote:

(07-10-2019, 10:25 AM)Squirrel Wrote: Anybody with perceived risks or comments on this company? Seeing the lack of responses on this company is exciting. Its a real possibility the company is being overlooked!

Co. Not interested by this forum is a good start.

FE is a showcase of ‘brand doesn’t travel well’. You need a lot of extra( start with $$) to enter new market( country). Investing in FE is about investing in the future of these countries. Never change since listed.

Currency risk. If RUR down by 50%. Earning will down by 50% if revenues and cost are both in RUR. Earning become smaller and it headquarter cost are in sgd. all these won’t appear in forex gain/loss because of accounting. What shown in the ar is for the net forex risk sitting on b/s only.

Hi donmihaihai,

In my humble opinion, if what you speak of really happens during a crisis whereby RUR is devalued and halved, the corresponding PL reduces by 50%, that would actually be a great result! The 2018 PL allocated to Russia + Ukraine is US$16.5m. Even if that gets halved, you would see a reduction of $8.25m. Take that off the TTM PL of USD21.443m, USD13.193m would still give us a 15 P/E ratio. That still just means that the company is fairly valued against industry comparable that was mentioned during the Super Group take private circular. That's a pretty good outcome for a crisis.

What's scary was that during 2014 and 2015, Russia and Ukraine segment business dipped into the red with the devaluation, with not enough "natural hedges" in place. Hopefully the management has learnt their lesson in this area.

Above is just an eg. just look at the segment number on assets and liabilities. Balances in each currency. RUR devalued 50% with cost in other currencies.easily mean making losses

(10-10-2019, 09:03 AM)donmihaihai Wrote:

(07-10-2019, 03:18 PM)Squirrel Wrote:

(07-10-2019, 12:50 PM)donmihaihai Wrote:

(07-10-2019, 10:25 AM)Squirrel Wrote: Anybody with perceived risks or comments on this company? Seeing the lack of responses on this company is exciting. Its a real possibility the company is being overlooked!

Co. Not interested by this forum is a good start.

FE is a showcase of ‘brand doesn’t travel well’. You need a lot of extra( start with $$) to enter new market( country). Investing in FE is about investing in the future of these countries. Never change since listed.

Currency risk. If RUR down by 50%. Earning will down by 50% if revenues and cost are both in RUR. Earning become smaller and it headquarter cost are in sgd. all these won’t appear in forex gain/loss because of accounting. What shown in the ar is for the net forex risk sitting on b/s only.

Hi donmihaihai,

In my humble opinion, if what you speak of really happens during a crisis whereby RUR is devalued and halved, the corresponding PL reduces by 50%, that would actually be a great result! The 2018 PL allocated to Russia + Ukraine is US$16.5m. Even if that gets halved, you would see a reduction of $8.25m. Take that off the TTM PL of USD21.443m, USD13.193m would still give us a 15 P/E ratio. That still just means that the company is fairly valued against industry comparable that was mentioned during the Super Group take private circular. That's a pretty good outcome for a crisis.

What's scary was that during 2014 and 2015, Russia and Ukraine segment business dipped into the red with the devaluation, with not enough "natural hedges" in place. Hopefully the management has learnt their lesson in this area.

Above is just an eg. just look at the segment number on assets and liabilities. Balances in each currency. RUR devalued 50% with cost in other currencies.easily mean making losses

The assets listed there includes non current assets. Even if there is a devaluation, it will be a non cash event. This is honestly very different from your example of Revenue and Cost going down 50%.

These assets are indication of where the likely cost to be.hq cost.manufacturing cost. Opex etc

(11-10-2019, 08:57 AM)donmihaihai Wrote: These assets are indication of where the likely cost to be.hq cost.manufacturing cost. Opex etc

I won’t comment on this inference, as I honestly am not able to confirm it.

What I do realize is that people who looks at this particular company really do have an availability heuristic for the risk in Ruble due to the high profile devaluation that happened a few years back. In the first place. Looking at where the Ruble is now trading versus prior to the sudden devaluation, the currency has not really recovered since. The probability of another sudden devaluation seems to be overblown as a concern from my point of view. That’s just what I seem to observe. And that probably contributes to the languishing share price despite good performance. It’s a reason to buy imho.

One have to consider the real possibility of such an event (sanction + oil price) happening again.

That being said, if anyone wants to read more about availability heuristics and other heuristics that humans engage in, you can read “The Undoing Project” by Michael Lewis. It’s an engaging read as are most of his books.

I would also rely on their disclosed risks in FX as they seemed to have disclosed that quite honestly, evidenced during the 2014 devaluation. Refer to my earlier post on a comparison. Personally I would rather refer to that disclosed number than infer from assets locality.

Not just for Food Empire but for investing in Russia generally, besides the common emerging market risk and elevated political risk, Russian bond crisis in 1998 brought down LTCM with RUB move from 6.5 to around 30 to US$, 2008 devaluation due to oil price collapse from around 23 to 36, then the 2014 devaluation including Crimea annex from around 35 to 80. Now it's 64.50. In 20 years since I met them, the value destruction due to RUB depreciation from 6.5 to 65 is quite remarkable.

When one has mismatch in Asset / Liability currency difference, the pain is more than accounting paper translation loss

Unless one is keen to take Russia risk, like i insinuated above, I don't think they will diversify any time soon.

(11-10-2019, 01:11 PM)specuvestor Wrote: Not just for Food Empire but for investing in Russia generally, besides the common emerging market risk and elevated political risk, Russian bond crisis in 1998 brought down LTCM with RUB move from 6.5 to around 30 to US$, 2008 devaluation due to oil price collapse from around 23 to 36, then the 2014 devaluation including Crimea annex from around 35 to 80. Now it's 64.50. In 20 years since I met them, the value destruction due to RUB depreciation from 6.5 to 65 is quite remarkable.

When one has mismatch in Asset / Liability currency difference, the pain is more than accounting paper translation loss

Unless one is keen to take Russia risk, like i insinuated above, I don't think they will diversify any time soon.

What in your opinion is considered diversified? Putting a number and percentage on a particular metrics would be an interesting point of reference. It’s ok if you do not want to commit to a response.

Like Graham says “You don't have to know a man's exact weight to know that he's fat“

75% is definitely undiversified. But then again 75% in Switzerland or Singapore is not the same comparison; just like 75% of portfolio in Food Empire is not the same as 75% in SREITS

There’s no simple answer in reality. But quantitatively you can take accounting principle of 50% +1 for consolidation as a guide, though it doesn’t make much sense in reality. I rather think qualitatively one can roughly know what is the risk profile after understanding the ABS and historicals.

I’m not against investing in emerging markets, including China: we are surrounded by them. As long one knows and ready for the known knowns, known unknowns that’s fine. But personally I’m not too familiar with Russian market nor Canada’s landbanking.