Financial analysis and investment recommendation for Frou Biscuits

Financial Analysis

FBI Financial Analysis

Stock symbol FBI belongs to the Alkis H. Hadjikyriakos company in Nicosia, Cyprus, also known as Frou Biscuits. The company "is engaged in the food sector. The Company is the parent company of the Frou Group of Companies and is mainly active in the manufacturing of biscuits and snack foods" (CreditRiskMonitor, 2011). Founded in 1964 the Frou group deals in much more than just biscuits. Information on the company's website says that;

"Other companies of the Group are Frou Cereals Ltd., which is active in the manufacture of breakfast cereals; Spinneys Cyprus Ltd., which imports and distributes foodstuffs, and personal care and household products; Frou Investments Ltd., an investment portfolio company; Athalassa Farm Ltd., which is engaged in the property sector, and Haris M. Hadjikyriacos (Holdings & Management) Ltd., which provides investment and asset management services" (CreditRiskMonitor, 2011).

Frou Frou group has continued to expand due to strong financial growth into both local and international markets to further strengthen its position. Following is a financial analysis of the company followed by a recommendation regarding the advisability of buying the company's stock.

Financial Performance

The company's website is very vague as to their actual financial information. Most company websites will include downloadable financial documents, such as annual and quarterly reports, that give potential investors a means of determining whether the company is a good buy of not. FBI did not provide this information, and it was difficult to find anything on the internet that talked about the financials of the company. The problem is that this is a relatively small company (as of 12/31/2010 only 212 employees) that is listed exclusively on the Cypriot stock exchange. Therefore, some of the information provided by the company was lacking. Also, there is not a great deal of information from the usual financial web site regarding the performance of the company either. It was necessary to piece together an understanding of the company's financial performance from this scant information.

The following table provides the information on FBI's total assets from 2003 to 2008.

FBI Financial Information 2003-2008

Year

2003

2004

2005

2006

2007

2008

Yearly increase

Group sales development

19,443

20,709

20,893

23,041

25,388

29,239

11%

Gross profit development

10,397

10,899

12,798

13%

Operating profit

12%

Total assets

40,615

42,239

47,675

55,748

62,510

64,413

17%

Note: Figures are in million euros. Information from (Frou Group, 2011).

Every year from 2003 up to 2008 FBI experienced positive growth, increasing at a cumulative rate of 17% per year. This is an incredible growth rate and has more to do with the fact that the company expanded its base from a simple food services company to include other industries as well. FBI also increased the market share of the company in the Cyprus biscuit industry even though competition increased markedly during the timeline of the report.

By conducting a SWOT analysis it is possible to see how the company has strengthened its position and determine what areas of growth are not being exploited as they should be.

Strengths

FBI's annual assets have increased each year and are up dramatically over a six-year period. This shows that the businesses managers have been very active in increasing the product's brand (in this case the biscuit and cracker segment), and in marketing. The managers have also been able to expand into other markets that are profitable and increase the overall stability of the company. There is also an experienced, well-recruited team of managers in place at the highest levels of FBI.

Weaknesses

From the chart provided, it is possible to see that the company has expanded rapidly. This could cause systemic weakness if the expansion is more rapid than the markets they are entering and the finances of the company can bear. The growth has been controlled to an extent, but there is the possibility of decreased sales and slower growth in the future.

Opportunities

So far, it seems that the business has taken advantage of all of the opportunities available. From a biscuit maker, the managers have expanded into other markets and this strategy has not slowed the overall growth of the business. As a matter of fact, this has spurred the company into even bigger growth. Since Cyprus is a relatively small island with an equally small population, it behooves them to have an aggressive international growth plan. The company has already been expanding beyond the borders of Cyprus, but it is possible to do even more. Since both Greece and Turkey have substantial representation in Cyprus, it is possible to market FBI products heavily in these regions. After the company is well established in these areas, it has the ability to do even more business because of it inclusion in the European Union. About two-thirds of the island and 80% of the population is made up of ethnic Greeks. This part of the island (the other one-third being people primarily by Turkish Cypriots in a country only recognized by Turkey), has formed a country that was accepted into the European Union. This means that FBI has the opportunity to send its products to markets all over Europe relatively inexpensively. The EU gives all member states certain trading privileges and FNI should take advantage of this situation to market its product.

Threats

The political situation on Cyprus is not very stable and the international market for snacks is very competitive. As mentioned above, the island of Cyprus actually houses two competing countries. The Turks to the northeast are not recognized by any government in the world except for Turkey. The international community has been pressuring the government of Turkey to release its ties to the Turkish Cypriot nation and allow the island to become whole. However, despite numerous attempts at peaceful settlements by the Greek Cypriots there has been no settlement. This means that although FBI is operating in a relatively stable environment on the Greek side of the island, this could all change very quickly. The situation could deteriorate if there is a declared war between Greece and Turkey, or if the United Nations gets involved on the side of the Greek Cypriots. The market threat is one that almost any company has to face. There are very few industries that are not competitive. However, and food industry is even more so because people are very brand loyal when it comes to snacks. This means that it could be difficult for FBI to make significant inroads into new markets.

Currently, since the financial crisis that has been occurring in Europe, the company's growth has stagnated. However, growth has held steady, and the company has not lost any ground. This bodes well for the company going forward.

Investment Performance

The company has built up its business to the point that it has been a very good investment in the past. Although the returns have not been outstanding, the dividends have been steady. Over the past year the stock has seen a high of 0.20 euros (on 3/30/2011), and a low of 0.13 euros (on 12/29/2010). Currently the stock price has steadied at 0.16 euros (BusinessWeek, 2011). This basically means that the stock price has remained relatively steady, fluctuating just a few percentage points over the course of the year. The steadiness is a tribute to the management of the company.

Another indicator of how well FBI managers have been able to manage the company is that it has had a steady dividend for its shareholders over the course of the last decade. Currently, the return rate stands at 5.65% and the dividend is 0.0089 euros (BusinessWeek, 2011). This means that the company has a positive dividend per share, and that this is growing. Maintaining the current rate of growth is essential for future profits for investors. It does not seem that the financial crisis has decreased the value of the company significantly, and FBI has been able to give its investors a positive return despite the fact that many stocks have seen zero growth for almost two years.

Recommendation

Making a reasoned recommendation with regard to the purchase of FBI stock must include several elements. How has the company performed in the past, how has the company positioned itself for the future, what does the market for this product look like going forward. These three elements plus a quick look at the global market should determine whether FBI is a good buy or not.

The entire report gives a good view of how the company has performed in the past. There was steady growth up to the financial crisis, and, after the downturn, the company was able to post positive returns. The financial emphasis has been on growth in other sectors to shore up its strength in its original market.

For the future, FBI has been trying to expand into more international markets. There has already been some exposure in other European countries, but there are great growth markets in Asia and Africa also. The company has stopped some of its expansion to make sure that the effects of the financial crisis are mitigated. All of these actions mean that FBI has positioned itself well for the future.

The overall market for the main products that Frou Biscuits sells is very good. Especially in a time when there is financial worry, people need to have some comfort foods that are inexpensive and satisfying. FBI sells products that are becoming better known in the European market, and they sell the kind of products that people will always need. The market is strong because of the financial distress.

The global financial market is not promising. Although some states have made significant strides to get their financial houses in order, there remain many uncertainties. Because FBI has many other businesses besides Frou Biscuits, there is a possibility that these could jeopardize the food services wing of the company. This is not a great threat, but FBI may have to downsize even more to make sure that they can maintain the positive growth that they have seen in the past. The global market will affect how profitable the company will be, but other factors are more important and they all look positive.

Based on all of the data that presents itself, FBI is a solid, small company which seems like a good investment. Any investor needs to make sure that they are constantly monitoring changes to the stock to make sure that their investment is safe. Going forward, FBI seems to be stable and a good investment.