When Bumitama Agri Ltd (SGX:P8Z) released its most recent earnings update (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Bumitama Agri performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see P8Z has performed.
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Were P8Z’s earnings stronger than its past performances and the industry?
P8Z’s trailing twelve-month earnings (from 31 March 2018) of Rp1.15t has increased by 8.78% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 6.04%, indicating the rate at which P8Z is growing has accelerated. How has it been able to do this? Let’s take a look at if it is solely owing to industry tailwinds, or if Bumitama Agri has experienced some company-specific growth.
The climb in earnings seems to be propelled by a robust top-line increase outstripping its growth rate of expenses. Though this has led to a margin contraction, it has made Bumitama Agri more profitable. Scanning growth from a sector-level, the SG food industry has been enduring some headwinds over the previous year, leading to average earnings dropping by more than half. This is a a solid change, given that the industry has been delivering a relatively flat growth rate over the past couple of years. This growth is a median of profitable companies of 15 Food companies in SG including Yeo Hiap Seng, QAF and Golden Agri-Resources. This means that whatever recent headwind the industry is facing, Bumitama Agri is less exposed compared to its peers.
In terms of returns from investment, Bumitama Agri has not invested its equity funds well, leading to a 15.72% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 7.48% exceeds the SG Food industry of 4.42%, indicating Bumitama Agri has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Bumitama Agri’s debt level, has increased over the past 3 years from 13.22% to 15.70%.
What does this mean?
Bumitama Agri’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Bumitama Agri has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research Bumitama Agri to get a more holistic view of the stock by looking at: