Ann: FNP FY 2020 Half Year Results Presentation, page-6

Overall not bad in my view. NPAT remains disappointing but there is a lot of good news.

Exposure to SA Asia and China is roughly 17% of revenues, the rest is domestic market. This should alleviate concerns about the impact of the virus on earnings. I think it is fair to assume that the virus will hang around for a while and then it will vanish or a vaccine will be introduced, like it used to happen with previous outbreaks.

I spent some time trying to crunch the numbers: I calculated the EBIT margin against its long-term value and it appears that this ratio has slightly deteriorated – which is disappointing as it indicates the growth of revenues may not translate to equally high growth of EBIT in the future. Also, I note in 2019 FNP reported increase in EBITDA margins. Today however they highlighted gross margins increase – which is a slightly different story and the two can’t be compared.

Not sure what to think about inflated PE ratio – I am not happy that it kind of triples the growth of the revenues but I suppose this should be discounted by the ultra-low interest rate environment. PE remains inflated but not as badly as it seems to be. The debt levels look ok, although it may increase given cash for investing activities seems to have dried out from the balance sheet.

Other good things: obviously fantastic growth perspectives and capacity, I also like how FNP operates in a seemingly no-growth dairy industry and manages to develop a nice niche. I also think it probably benefits from others’ price wars (large retailers milk price war).

To summarise, I think the market has been far too pessimistic lately. Let’s wait patiently through the virus debacle, things will get better.