Century Pacific Food, Inc. (CNPF) Prospectus at a Glance

Key points:

  • CNPF’s success relies greatly on its capability to increase profit margins
  • CNPF appears to be an attractive investment to be held for 3 years

The listing vehicle of the Century Group, Century Pacific Food, Inc. (CNPF, the Company) was incorporated only on October 25, 2013. An illustration of Century Group’s restructuring is presented below:

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So that CNPF will have the following corporate structure:

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Businesses merged to and subsidiaries of CNPF can be grouped under the following business segments:

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CNPF enjoys market dominance in all its business segment except for dairy and mixes where the Company is far number 2 from Alaska Milk Corporation which has a market share of 72%.

Brands under CNPF are as follows:

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CNPF’s tuna export comprises private label processed tuna as well as branded products. Private label are those manufactured for offer under another company’s brand. The Company’s customers under the private label business are shown above as “major customers”.

Below is the contribution to revenues and earnings of each business segment:

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A total of 230 million CNPF shares will be offered on April 23, 2014 to 12 noon of April 29, 2014 at P14.50. The shares are expected to be listed on May 6, 2014.

The company expects to raise P3 billion and will be distributed as follows:

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The 33.8% allocation of proceed to working capital and/or potential acquisition is in anticipation of substantial increase in sales due to intensified marketing and sales initiative for the Company’s products. The allocated portion for potential acquisition is for the acquisition of strong but undervalued local brands. The Company claims to have a proven track record of turning under-promoted and neglected brands into market leading brands by applying its strategies, such as proper marketing and extensive national distribution coverage.

As at December 31, 2013 the Company leased 14 distribution depots and warehouses.

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Below are the brands that the Company purchased and developed:

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The Company allocated 729 million of the proceeds for capital expenditures. The Company intends to construction P457 million worth of tin can manufacturing factory. The factory will have an output capacity of at least two million tin cans a year supplying 25 – 30% of the Company’s tin can requirements. This will enable the Company to improve margins by sourcing tin cans at cost and reducing logistics costs associated with purchasing from third parties.

From the proceeds allocated for capital expenditures, P132 million is allocated for the construction of dairy and mix factory. The new facility is expected to further increase dairy production from 5,500 cases per day to 11,000 cases per day. The Company sees a strong growth opportunity for the dairy market. The Company plans to grow Angel brand through improved formulations, smaller packaging sizes, and achieve market leading position in the two-in-one product platform for canned milk and cream. For the Birch Tree brand, the Company intends to expand into adult and children’s milk segment.

The 32.9 million allocated for IT upgrade is intended for a demand planning software and IT data security. The demand planning software will improve the Company’s demand planning and forecasting and supply replenishment capabilities.

 

Comments:

CNPF’s overall profit margin of 4% (URC has a profit margin of 11% in 2012) is a clear room for growth and the Company is definitely working on it with their plans to construct their own tin can manufacturing factory and review of product offerings to rationalize unprofitable products from its portfolio.

Below is the calculation of CNPF’s PE ratio based on their pro-forma consolidated financial statement:

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However, what matters most to investors is the future prospect of a Company. Let’s attempt to forecast CNPF’s earnings based on their strategies and industry statistics and developments.

Industry statistics and developments

Below is the projected growth rate of the industries where CNPF participates:

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Philippine tuna exports to the EU are estimated to increase by about 64% by 2014 once it gains duty-free access to the 28-nation trade bloc under the enhanced Generalized Scheme of Preferences (GSP Plus Program).

Below is the tuna export breakdown of the Company:

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Assuming that all the strategies mentioned by the Company in its prospectus all went well and they happen to increase profit margin equal to that of URC, we can have the following computations:

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Revenues of Canned and processed fish, Canned meat, and Dairy and Mixes are estimated to grow by 7%, 7.30%, and 4.80% respectively from 2014 to 2016.  For e2014 Tuna Export revenues, the calculations are shown below and estimated to grow at the same rate as Canned and processed fish for2015 and 2016.

e2014 Tuna export revenue figures are calculated as follows:

Breakdown per revenue source of export:

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For the estimated export revenues in 2014, all else are remained constant while Europe is estimated to grow by 64%.

 

Conclusion

Assuming all went well for CNPF, we can expect EPS to grow from .33 to 1.11 by 2016. Buying at P14.50 appears to be a good investment for an investor of 3 years.

In addition, CNPF has a dividend policy of declaring 30% of prior year earnings as dividends.

 

 

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.