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Freedom Foods (ASX:FNP) shares are inching towards recovery

Freedom Foods Group Ltd (ASX: FNP) shares are inching towards a recovery. It has reported its FY21 half-year result and its second quarter to the market.

What did Freedom Foods say?

After a difficult FY20, Freedom Foods said that its total revenue for the first six months of FY21 was 10% higher to $317.3 million, whilst continuing operations revenue grew 15% to $291.4 million. Continuing operations excludes ‘cereal and snacks’ which are going to be divested to Arnott’s Group.

Continuing operations underlying EBITDA (EBITDA explained) rose by 182% to $21.7 million.

Dairy and nutritionals revenue grew by 15% to $209.8 million, with positive adjusted EBITDA of $8.5 million. Plant-based beverages revenue went up 17% to $75.2 million, with adjusted EBITDA up 21% to $15.2 million.

However, continuing net profit came in at a loss of $15.2 million, though this was an improvement of 70% from the prior corresponding period. Reported net profit was a loss of $23.9 million, an improvement of 62%.

The company said that it achieved positive cashflow from operations of $4.4 million before financing costs and non-recurring adjustments. This was $30.5 million higher than the prior corresponding period.

Business progress

Freedom Foods said that its net debt worsened by 12% to $326.9 million and the net tangible assets per share fell by 89% to $0.94.

The divestment of the cereals and snacks division is on target for completion in March 2021. Freedom Foods’ specialty seafood division remains under review, with the immediate focus on transformation and operational initiatives within the core dairy and nutritional and plant-based beverages businesses.

Management said that progress on recapitalisation continues to be made, with an update to be provided in the middle of March. Until then, shares will remain in voluntary suspension. The plan is supported in principle by majority shareholder Arrovest and the indicative in-principle support of the group’s lenders.

The business will be on better footing by substantially repaying its existing debt facilities. Management believe it represents the best outcome for the company and shareholders, and is less dilutive than other options.

Summary thoughts

Who knows what the Freedom Foods share price will do once it’s out of a trading halt? It’s hard to know whether the business would be a beaten-up opportunity or whether the lower price is a fair price and a profit recovery will take a long term. I tend to leave these types of investment decisions to others, but I hope the business can get back on its feet.

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Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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