The 348.5 billion pesos ($6.9 billion) Philippine food and beverage company reported its fiscal 2016 results in mid-January. For 2016, Universal Robina Corp. (PHS:URC, Financial)(UVRBY, Financial) reported a 2.4% increase in overall sales to 111.63 billion pesos while having delivered a 23% profit increase to 15.4 billion pesos—a 13.8% profit margin.
As observed, the company gained 1.9 billion pesos in foreign exchange in 2016 compared to losses of 265 million pesos in 2015. According to company filings, these gains are "due to the combined effects of appreciation of international subsidiaries' local currencies against the U.S. dollar, particularly IDR and NZD, and depreciation of Philippine peso against the U.S. dollar."
In addition, Universal Robina recorded an 855 million pesos gain in market valuations in 2016 compared to losses of 214.6 million pesos the year prior. These gains are "due to fair value changes of derivative instruments and lower decline in market values of equity investments."
Shares in Universal Robina rose 0.57% post-earnings release.
Valuations
Despite its recent share price slump, Universal Robina still trades at a premium compared to its peers. According to Reuters data, the food and beverage company had a trailing price-earnings (P/E) ratio of 23.1 times (industry figure 21.6), price-book (P/B) ratio of 4.7 times (industry figure 3.4) and price-sales (P/S) ratio of 3.2 times (industry figure 1.9).
Universal Robina also had a trailing dividend yield of 1.03% with a 45.4% payout ratio.
Total return
The company's share price depreciated 20% within the past year—including dividends, according to Morningstar data. The company greatly underperformed the country’s own index, iShares MSCI Philippines (EPHE, Financial), and the broader S&P 500 index—each having total returns of -1.9% and 21.82%.
On a five-year basis, the company outperformed both indices with 24.5% total returns versus 4.84% and 14%.
Universal Robina
Universal Robina is the ninth-largest publicly listed company in the Philippines in terms of market capitalization, which is 348.5 billion pesos as of March 2016. It is the Philippines first “multinational” company and was founded in 1954. Universal Robina remains one of the country’s largest branded food product companies.
The snack company is a core subsidiary of JG Summit Holdings (PHS:JGS, Financial), one of the largest and most diversified conglomerates in the Philippines—JG Summit Holdings is the Philippines third-largest publicly listed company with 530 billion pesos in market capitalization.
According to filings, Universal Robina is involved in a wide range of food-related businesses, including the manufacture and distribution of branded consumer foods, production of hogs and day-old pullets, manufacture of animal feeds and veterinary products, flour milling and sugar milling and refining.
Universal Robina is a dominant player with leading market share in salty snacks, candies and chocolates, and is a significant player in biscuits in the Philippines.
The company is also the largest player in the ready-to-drink tea market and cup noodles and is a respectable second player in the coffee business. With the acquisition of Balayan Mill in February 2016, the URC Sugar division is now the largest producer in the country based on capacity.
Universal Robina has also been an active acquirer of international companies in recent years. These activities include acquiring Australia’s second-largest salty snacks player, Snack Brands Australia, and the leading snack food company in New Zealand, Griffin’s Food Ltd.
The company derived 28.2%, or 31.45 billion pesos, of its total sales in 2016 from international operations.
Universal Robina runs its food business through operating divisions and wholly-owned or majority-owned subsidiaries that are organized into three business segments: branded consumer foods, agroindustrial products and commodity food products.
Branded consumer foods
The branded consumer foods segment includes Universal Robina’s packaging division. The segment manufactures and distributes a diverse mix of salty snacks, chocolates, candies, biscuits, packaged cakes, beverages, instant noodles and pasta and tomato-based products.
The company established its packaging division to engage in the manufacture of biaxially oriented polypropylene films for packaging companies.
In addition, the snacks company also formed a food service and industrial division to supply BCF products in bulk to hotels, restaurants and schools.
In 2016, branded consumer foods grew 3.6% and generated 80%, or 105.6 billion pesos, of total company sales. The segment also delivered an EBITDA — earnings before interest, taxes, depreciation and amortization – margin of 17%, versus18% in 2015.
Agroindustrial products
Universal Robina’s agro-industrial products segment could be subdivided into another set of four segments: Robina Farm-Hogs, Robina Farm-Poultry, the manufacturing and distribution of animal feeds (URC Feeds) and the production and distribution of animal health products (URC Veterinary Drugs).
The agro-industrial products segment engages in hog and poultry farming, manufacturing and distribution of animal feeds, glucose and soy products and the production and distribution of animal health products. The segment’s peak season is during the summer and before the Christmas season.
In 2016, the agro-industrial products segment grew nearly flat by 0.3% and generated 7%, or 9.2 billion pesos, of total company sales and delivered an EBITDA margin of 16%, versus 17% in 2015.
Commodity food products
The commodity food products segment operates three divisions: sugar milling and refining through sugar division, flour milling and pasta manufacturing through flour division and renewable energy development through distillery and cogeneration divisions.
In 2016, the commodity food products segment grew 16.8% and generated 12.9%, or 17.1 billion pesos, of total company sales. The segment delivered an EBITDA margin of 26%—the same level of profitability in 2015.
On average, Universal Robina registered five-year sales, profit growth and margin averages of 11%, 27% and 12%.
Cash, debt and book value
As of September 2016, the company had 16.1 billion pesos in cash and equivalents and 38.05 billion pesos in debt, with a debt-equity ratio of 0.51 times.
Meanwhile, the company reported 30% of 141.4 billion pesos in assets were goodwill and intangibles, while having a book value of 75.3 billion pesos.
Cash flow
In 2016, Universal Robina saw a 30% decline in cash flow from operations to 16.7 billion pesos. Most of this cash flow reduction came from the following: receivables, inventories, biological assets and other current assets.
Capital expenditures—including investments in intangible assets—were 6.49 billion pesos for the period, leaving the company with 10.2 billion pesos in free cash flow, compared to 17.4 billion pesos in 2015.
The company, on average, allocated 108% of its free cash flow to dividend payouts over the past three fiscal years.
In addition, the snack company issued 4.4 billion worth of shares—diluting its pre-existing shareholders—to fund the 21.6 billion pesos acquisition of Snack Brands Australia.Â
The company also allocated 21.2 billion pesos to subsidiaries. As such, Universal Robina acquired Griffin’s Food Ltd, for 8.2 billion pesos in 2014. The company also purchased Balayan sugar mill located in Batangas, Philippines for 1.6 billion pesos. As mentioned earlier, the acquisition made Universal Robina the largest sugar producer in the country based on capacity.
Universal Robina also took in 12.5 billion pesos in debt net payments.
Conclusion
Universal Robina is a stalwart among Philippine food-related businesses. The company has the leading market share in most of its businesses and also has been acquiring similar businesses overseas. These acquisitions have materially improved the company’s overall sales and profit growth.
The snacks company also logged book value growth, albeit with a bit more than goodwill and intangibles in its assets. It had a moderately leveraged balance sheet. Additionally, Universal Robina has maintained its level of cash flow payouts to shareholders in recent years.
Twelve analysts covering the company had a median target price of 200 pesos a share, 39% higher than today’s share price of 158.1 pesos.
Meanwhile, a 30% margin in combination with the company’s five-year profit growth and earnings multiple give a value of 180 a share.
In summary, Universal Robina is a buy with 180 pesos per share target price.
Disclosure: I do not have shares in any of the companies mentioned.
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