Nutritional and allergen-free food manufacturer Freedom Foods (ASX: FNP) has reported full year results that show a 59.2% increase in gross sales revenue to $115.5 million and a 92.2% increase in operating net profit after tax to $6.3 million.
The boost to revenue was achieved in part thanks to a 50% increase in the volume of cereal products sold, which reached 1 million cases. According to an Aztec survey, Freedom’s share of the health cereals market is now approaching 50% market share. The volume growth in the all-important Freedom Cereals unit led to sales revenue growth of 41%. A second highlight from the results was a 28% increase in sales within the dairy alternative beverages unit, which produces soy, rice and almond milk products.
During the financial year, Freedom sold down its holding in New Zealand-based A2 Corp (NZE: ATM), the company behind the A2 Milk brand, and realised a pre-tax profit on sale of $11.8 million in the process. Freedom still retains an 18% holding in A2 that is currently worth around $70 million.
Freedom can boast of having “the only integrated large scale manufacturing capability in Australia (and overseas) producing cereals and snacks ‘free from’ key allergens such as gluten, nuts and dairy to the lowest detectable standards.” This makes for an attractive asset which has obviously gotten investors excited.
The company has certainly been the star performer amongst its peer group over the past 12 months. In a period in which the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up nearly 18%, Freedom’s share price has soared over 244%, meanwhile fellow food manufacturers Goodman Fielder (ASX: GFF) and Patties Foods (ASX: PFL) have returned 36.5% and -14% respectively.
With guidance from management that Freedom’s exposure to Asia and North America will continue to grow — the US gluten-free market alone is estimated at $3.4 billion — there is momentum for the company to report higher revenues and profits over the coming financial year.
However, if one excludes the $0.8 million in equity accounted profits from A2 from Freedom’s operating net profit and back out the $70 million holding in A2 from Freedom’s current market capitalisation, the firm looks to be trading on a historic price-to-earnings multiple of around 31 times.
If Freedom can continue to grow revenues and earnings going forward at a similar rate to the 2013 financial year then this multiple could very well be justified, particularly given the niche assets and market position the company has. That being said, shareholders will no doubt be keeping a close eye on growth rates to ensure this high multiple is deserved and can be sustained.
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Motley Fool contributor Tim McArthur owns a share in Goodman Fielder.