Petra Foods

Petra Foods: 2Q13 consumer earnings growth dipped to 8%, taking 1H13 growth to 13% below the company's 20% target. While the IDR has created a drag – on a local currency basis 1H growth would have been 21%. There has been some comments on a slowdown in low-end demand. On a more positive note, regional growth continued (revenue up 14% in 1H13) and EBITDA margin continues to expand (from 16.5% to 17.8%) on positive mix changes, especially the rationalisation of third party brand distribution. Stanchart view the drop in ingredient division disposal proceeds from US$300m to US$164m as a material negative. The shortfall reflects the operating loss in the period between agreeing (Dec '12) and completing (Jun '13) the deal, and balance sheet write-downs on inventory positions. In per share terms the shortfall is $0.28. With ongoing IDR weakness, Stanchart lower its FY13 earnings growth rate estimate to 14% from 20%. While low input prices (cocoa and sugar) do provide potential for positive margin benefits, currency weakness counters these. Stanchart downgrades Petra Foods to IN-LINE with TP of $4.11 (from $4.45).