FBI Financial Analysis
Stock symbol FBI belongs to the Alkis H. Hadjikyriakos company in Nicosia, Cyprus, also known as Frou Biscuits. The company “is engaged in the food sector. The Company is the parent company of the Frou Group of Companies and is mainly active in the manufacturing of biscuits and snack foods” (CreditRiskMonitor, 2011). Founded in 1964 the Frou group deals in much more than just biscuits. Information on the company’s website says that;
“Other companies of the Group are Frou Cereals Ltd., which is active in the manufacture of breakfast cereals; Spinneys Cyprus Ltd., which imports and distributes foodstuffs, and personal care and household products; Frou Investments Ltd., an investment portfolio company; Athalassa Farm Ltd., which is engaged in the property sector, and Haris M. Hadjikyriacos (Holdings & Management) Ltd., which provides investment and asset management services” (CreditRiskMonitor, 2011).
Frou Frou group has continued to expand due to strong financial growth into both local and international markets to further strengthen its position. Following is a financial analysis of the company followed by a recommendation regarding the advisability of buying the company’s stock.
The company’s website is very vague as to their actual financial information. Most company websites will include downloadable financial documents, such as annual and quarterly reports, that give potential investors a means of determining whether the company is a good buy of not. FBI did not provide this information, and it was difficult to find anything on the internet that talked about the financials of the company. The problem is that this is a relatively small company (as of 12/31/2010 only 212 employees) that is listed exclusively on the Cypriot stock exchange. Therefore, some of the information provided by the company was lacking. Also, there is not a great deal of information from the usual financial web site regarding the performance of the company either. It was necessary to piece together an understanding of the company’s financial performance from this scant information.
The following table provides the information on FBI’s total assets from 2003 to 2008.
FBI Financial Information 2003-2008
Group sales development
Gross profit development
Note: Figures are in million euros. Information from (Frou Group, 2011).
Every year from 2003 up to 2008 FBI experienced positive growth, increasing at a cumulative rate of 17% per year. This is an incredible growth rate and has more to do with the fact that the company expanded its base from a simple food services company to include other industries as well. FBI also increased the market share of the company in the Cyprus biscuit industry even though competition increased markedly during the timeline of the report.
By conducting a SWOT analysis it is possible to see how the company has strengthened its position and determine what areas of growth are not being exploited as they should be.
FBI’s annual assets have increased each year and are up dramatically over a six-year period. This shows that the businesses managers have been very active in increasing the product’s brand (in this case the biscuit and cracker segment), and in marketing. The managers have also been able to expand into other markets that are profitable and increase the overall stability of the company. There is also an experienced, well-recruited team of managers in place at the highest levels of FBI.
From the chart provided, it is possible to see that the company has expanded rapidly. This could cause systemic weakness if the expansion is more rapid than the markets they are entering and the finances of the company can bear. The growth has been controlled to an extent, but there is the possibility of decreased sales and slower growth in the future.
So far, it seems that the business has taken advantage of all of the opportunities available. From a biscuit maker, the managers have expanded into other markets and this strategy has not slowed the overall growth of the business. As a matter of fact, this has spurred the company into even bigger growth. Since Cyprus is a relatively small island with an equally small population, it behooves them to have an aggressive international growth plan. The company has already been expanding beyond the borders of Cyprus, but it is possible to do even more. Since both Greece and Turkey have substantial representation in Cyprus, it is possible to market FBI products heavily in these regions. After the company is well established in these areas, it has the ability to do even more business because of it inclusion in the European Union. About two-thirds of the island and 80% of the population is made up of ethnic Greeks. This part of the island (the other one-third being people primarily by Turkish Cypriots in a country only recognized by Turkey), has formed a country that was accepted into the European Union. This means that FBI has the opportunity to send its products to markets all over Europe relatively inexpensively. The EU gives all member states certain trading privileges and FNI should take advantage of this situation to market its product.
The political situation on Cyprus is not very stable and the international market for snacks is very competitive. As mentioned above, the island of Cyprus actually houses two competing countries. The Turks to the northeast are not recognized by any government in the world except for Turkey. The international community has been pressuring the government of Turkey to release its ties to the Turkish Cypriot nation and allow the island to become whole. However, despite numerous attempts at peaceful settlements by the Greek Cypriots there has been no settlement. This means that although FBI is operating in a relatively stable environment on the Greek side of the island, this could all change very quickly. The situation could deteriorate if there is a declared war between Greece and Turkey, or if the United Nations gets involved on the side of the Greek Cypriots. The market threat is one that almost any company has to face. There are very few industries that are not competitive. However, and food industry is even more so because people are very brand loyal when it comes to snacks. This means that it could be difficult for FBI to make significant inroads into new markets.
Currently, since the financial crisis that has been occurring in Europe, the company’s growth has stagnated. However, growth has held steady, and the company has not lost any ground. This bodes well for the company going forward.
The company has built up its business to the point that it has been a very good investment in the past. Although the returns have not been outstanding, the dividends have been steady. Over the past year the stock has seen a high of 0.20 euros (on 3/30/2011), and a low of 0.13 euros (on 12/29/2010). Currently the stock price has steadied at 0.16 euros (BusinessWeek, 2011). This basically means that the stock price has remained relatively steady, fluctuating just a few percentage points over the course of the year. The steadiness is a tribute to the management of the company.
Another indicator of how well FBI managers have been able to manage the company is that it has had a steady dividend for its shareholders over the course of the last decade. Currently, the return rate stands at 5.65% and the dividend is 0.0089 euros (BusinessWeek, 2011). This means that the company has a positive dividend per share, and that this is growing. Maintaining the current rate of growth is essential for future profits for investors. It does not seem that the financial crisis has decreased the value of the company significantly, and FBI has been able to give its investors a positive return despite the fact that many stocks have seen zero growth for almost two years.
Position can be regarded as how strong the company is with regard to the problems that could occur. One way to measure the position of the company is by using Porter’s Five Forces Model to make an evaluation. These forces — threat of new competition, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers, and the intensity of the competitive rivalry — all figure into how well a company will do going forward.
Looking at the two potential threats listed by Porter, gives the investor a look at how the company responds to competition. Because the main product of FBI can be easily copied using slightly different ingredients, there is always the threat that FBI will lose market share. However, brand loyalty makes it very likely that this will not happen. Customers have already shown that they prefer FBI’s product because they have made it the largest producer of biscuits in Cyprus. Also, because every person has a…