Growth Focus: Freedom Foods Group Ltd (FNP)

by Patrick Taylor

Date of Data Capture: 5/11/2018
Classification: Food Processing
Current Price: $5.12
Market Capitalisation: $1.264 B
Forecast EBITDA Growth: 66.84%
Yield Estimate: 1.12%
Consensus Price Target: $6.86
# Covering Analysts: 2
Discount at Current Price: 33.98%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
Trend Bias: Up-Down / Long-Short

Short-term: Positive-Neutral
Medium-term: Neutral-Negative
Long-term: Positive-Neutral

Recommendation: Buy
Focus: Capital Growth
Set up Notes:
·    Despite pulling back 30% over the last 2 months FNP remains in longer-term uptrend and this should be a good opportunity to pick up a high-performing stock at a handy discount.
·    Excellent performance has been driving prices higher and we expect this to continue with very strong forecasts for increasing sales, margins and earnings carrying through to 2021.
·    Pricing has pulled back to $5 support - which was the last breakout zone and it is fairly normal to see this retested – and we have shorter-term signalling turning positive here, right now.
·    Price targets sit higher at $6.00, $6.50 and $7.00 and we see support layered in at $5.00, $4.50 and down to $4.00 if needed.

Growth Focus: 
Freedom Foods Group Ltd (FNP)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

We don’t take liberties when we recommend stocks - each choice must pass through our selection process and stand out amongst peers with solid performance and great potential. We do however like to take advantage of good opportunities and short-term weakness in great companies, and that is why we are putting Freedom Foods Group Ltd (FNP) back on the table as we hope to take a bite of their healthy dip in price.

Established in 1990 and based in Sydney, FNP manufactures and sells specialty food products, mostly operating within the ‘health and wellness’ sector of the market. Being a mostly domestic operator within Australia, the company is gaining exposure to markets within North America, the Middle East, China, South-East Asia and New Zealand, working with Woolworths, Coles, Aldi, Costco, 7Eleven, Wholefoods and Target, among other major brands.

The market for organic/non-allergenic foods and products has been growing steadily for years - most visible in the gluten-free and organic consumer trends - with further gains forecast to continue and even gain strength out to 2021. Although analyst coverage is relatively thin, aggressive growth across sales, margins and earning is expected and reflected in the current large discount to rising consensus price targets.

A more focussed push into the Chinese markets is coming with FNP recently announcing a joint venture with Theland New Cloud Digimart Co for the development of Freedom’s “Arnold’s Farm” range of snacks and cereals in China
earlier this month. Theland is majority owned by Alibaba and makes its produce available throughout 25 provinces and distributed to 4000 outlets, representing a continuation of five years trading within China and remains a key area of growth for the company going forward.

The share price of FNP gained almost 3000% from the beginning of the rally seven years ago, reaching a peak of $7.00 in September before falling almost 30% over the last eight weeks. Right now the price is sitting just above major support at $5.00 and with short-term signalling turning positive we are expecting a rally to take pricing higher in the short-term and for the longer-term strength to continue. We take confidence in the very large on-market buying by directors and Perich family members taking advantage of recent market weakness. We are also happy to take a bite of FNP at these levels and think they can continue to firm up their bottom line.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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