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QAF Limited: $1.14 A Share Is Cheaper Than 93c A Share?
Aspire, Hot Picks | 24 April 2015
By: AK(ASSI)
Articles (41) Profile

One year ago, when QAF Limited’s stock was trading at 93c a share, I observed that the Price/Earnings (PE) ratio was 16.6x and I said that to buy in at that price would be making an assumption that earnings could improve dramatically in the future.

There were pertinent concerns such as rising costs of doing business as well as the weak Australian Dollar and how these could continue to weigh down performance.

Well, for the full year 2014, QAF Limited has exceeded expectations as Earnings Per Share (EPS) improved 46.4 percent from 5.6c to 8.2c, year-on-year. With the Australian Dollar having weakened further against the Singapore Dollar, how did this happen?

There was a one off contribution by Oxdale Dairy through the sale of its dairy business. Group operating profit, thus, received a boost of $1.6 million. This will not be repeated, of course.

However, considering the fact that Group profit improved some $15.7 million (before tax), not having this one off contribution in the current year would still mean that QAF Limited would do very well, everything else remaining equal.

All business segments did well but the lion share of the improvement came from Rivalea, an Australian business segment. Operating profits improved threefold although revenue stayed flat because of higher selling prices, better product mix, productivity gains and lower raw material costs.

Lower finance costs also helped QAF Limited to do better in 2014 as borrowings were pared down. Interest expense decreased $0.9 million from $4.1 million to $3.2 million last year.

Today, QAF Limited’s stock closed at $1.14 a share and based on an EPS of 8.2c, we are looking at a PE ratio of some 14x. Even if we remove the one off divestment gain by Oxdale Dairy, we would be looking at a PE ratio of 14.5x, thereabouts.

So, although QAF Limited’s stock is priced higher now, compared to buying at 93c a share a year ago, it is actually cheaper at $1.14 a share. This is what I meant when I said that a stock could actually be cheaper although its price could be higher. It is about value, not price.

QAF Limited has made their first foray into China in October 2014. With operations in Singapore, Malaysia, Philippines and Australia stable and doing well, if their Chinese operations should prove successful, we could see things looking even better in the next few years. After all, the Chinese market is huge and bread is an accepted staple as well as convenience food.

A final dividend of 4c per share has been declared for a full year Distribution Per Share (DPS) of 5c. This DPS is probably sustainable and I look forward to receiving free bread again in future.

AK is a Singaporean stock market investor and a popular blogger. Hisblog was created with the intention of educating investors and sharing his investing journey with the target of having a more secure financial future in an uncertain world by creating a stream of reliable passive income with high yields.

AK is a Singaporean stock market investor and a popular blogger. His blog was created with the intention of educating investors and sharing his investing journey with the target of having a more secure financial future in an uncertain world by creating a stream of reliable passive income with high yields.

Please click here for more information about this author.


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