Hi All, I have read lots of posts about Farm Pride Foods here...

Hi All,

I have read lots of posts about Farm Pride Foods here and I tried to come up with what the company is really worth. I applied few methods:

1. Discounted Cash Flow Method - $0.670
I used current 4c per share net profit, which is assuming just last year full year result and 3% annual growth earning per share, then leveling to only 2% per year, and discount rate on ASX at 8% as a comparison. The formula returns the value of the company at $0.670. This is very very conservative assuming no profit in 2nd Half2015.
You can do you own calcs below.
http://www.moneychimp.com/articles/valuation/dcf.htm

2. Roger Montgomery / Warren Buffett Intrinsic Value tables - $0.470
Assuming Return on Equity at 10%, as I assume the net profit of around 2.8mil for full year 2015. The multiplier factor is 1.000 by equity per share which is 0.470. The result is $0.470.  

3. P/E Ratio - $0.440
If FRM FY 2015 net profit finished at 3 mil then we can use very conservative ration of P/E of 8 which equals to market cap of 24mil. If we divide it by number of shares, then it comes to $0.440

4. Operating Cash Flow and Assets - $0.400
Separately I like to look at the operating cash flow itself. Company is heading to have around $7mil op c/flow this year and every year for the last 5 years they were in positive zone. If they maintain it every year they will start piling up cash after repaying the debt. That leads to potential expansion, dividends or acquisitions.
Probably this year current assets with equal current liabilities. Acid test will be in safe zone of 0.75. Current ratio will be at least 1.00. Looking at the non current assets company has around 30mil worth of land, plant and equipment. If company decided to close down it would be able to repay all the debts with current assets and potentially sell non current assets at 0.75 rate of current valuation especially that land they own has not been revalued since 2006. That would be worth 22mil which is $0.400 per share.

These are my calculations and assumptions and I believe I have been very very conservative with it, and I believe there is solid margin of safety there. Of course there are risks like ACCC case or potential biosecurity risk, however every business has some risks. They have done some monumental changes in last 2-3 years.
- 10 mil debt reduction
- 7 mil payables reduction
- biological assets reduction - probably for cage eggs demand drop off
- increase in op cash flow
- net profit stability
- capacity optimization and admin cost reduction
- introduced frozen egg whites - over production shifting to long shelf life product
- many more, so I think those changes will be paying off in the upcoming future.