TL;DR Like other F&B outlets, the firm suffers from weak profitability and high capital expenditures, which leaves little free cashflow. Furthermore, there is a good chance their shares are overvalued too.
Business Profile
Source: Neo Group Limited __** **
Neo Group provides customers with end-to-end food and catering solutions through a comprehensive suite of capabilities and service offerings under five business segments – Food Catering, Food Retail, Food Manufacturing, Food Trading and Food & Catering Supplies.
Income Statement
For 2018, the income statement looks weak. This is due to tot he very weak profitability of the business, with a low net profit margin of just 1.7%. On the bright side, the company has been growing its earnings over the last few years. This has resulted in the profit margins improving in 2018, though they are still quite low.
Balance Sheet
The balance sheet of Neo Group seems quite weak. They have quite weak short-term liquidity, as well as poor debt metrics. This is due not only to high debt but also from weak earnings relative to this debt. Moreover, most of the debt is short-term in nature. These figures had similarly improved in 2018 from the previous years, which is a good sign.
Free Cashflow Analysis
Based on the Free Cashflow margin, Neo Group's FCF seems quite weak. This is probably due to the weak earnings as well as high reinvestment rate of the firm. Free cash flows have decreased year on year. This is mainly caused by a large increase in the reinvestment of the firm. This then resulted in free cash flow to equity dropping by quite a lot. Given the state of the firm' cash flows, I don't think the high dividend payout will be able to sustain itself over time.
Efficiency Metrics
The firm is quite inefficient in its use of assets. However, this seems to have improved over the last few years. The reason why the ROE is low is due mainly to the weak earnings of the firm. This is despite asset turnover and Equity Multiplier being on the higher end. Additionally, the firm has a very high reinvestment rate, that is more than 10 times earnings. Return on capital is also fairly weak. However, due to the high reinvestment this year, growth in earnings might be strong the following year.
Valuation
The shares, however, look rather overvalued. Although some investors might price this as a growth stock, I wouldn't agree as the earnings of the firm have been weak and the firm has not been very efficient with its use of capital.
TL;DR Like other F&B outlets, the firm suffers from weak profitability and high capital expenditures, which leaves little free cashflow. Furthermore, there is a good chance their shares are overvalued too.
Business Profile
Source: Neo Group Limited __** **
Neo Group provides customers with end-to-end food and catering solutions through a comprehensive suite of capabilities and service offerings under five business segments – Food Catering, Food Retail, Food Manufacturing, Food Trading and Food & Catering Supplies.
Income Statement
For 2018, the income statement looks weak. This is due to tot he very weak profitability of the business, with a low net profit margin of just 1.7%. On the bright side, the company has been growing its earnings over the last few years. This has resulted in the profit margins improving in 2018, though they are still quite low.
Balance Sheet
The balance sheet of Neo Group seems quite weak. They have quite weak short-term liquidity, as well as poor debt metrics. This is due not only to high debt but also from weak earnings relative to this debt. Moreover, most of the debt is short-term in nature. These figures had similarly improved in 2018 from the previous years, which is a good sign.
Free Cashflow Analysis
Based on the Free Cashflow margin, Neo Group's FCF seems quite weak. This is probably due to the weak earnings as well as high reinvestment rate of the firm. Free cash flows have decreased year on year. This is mainly caused by a large increase in the reinvestment of the firm. This then resulted in free cash flow to equity dropping by quite a lot. Given the state of the firm' cash flows, I don't think the high dividend payout will be able to sustain itself over time.
Efficiency Metrics
The firm is quite inefficient in its use of assets. However, this seems to have improved over the last few years. The reason why the ROE is low is due mainly to the weak earnings of the firm. This is despite asset turnover and Equity Multiplier being on the higher end. Additionally, the firm has a very high reinvestment rate, that is more than 10 times earnings. Return on capital is also fairly weak. However, due to the high reinvestment this year, growth in earnings might be strong the following year.
Valuation
The shares, however, look rather overvalued. Although some investors might price this as a growth stock, I wouldn't agree as the earnings of the firm have been weak and the firm has not been very efficient with its use of capital.