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Bumitama Agri Ltd (SGX:P8Z), a S$1.19b small-cap, is a consumer staples company operating in an industry which supplies necessities to consumers. This means it is less sensitive to changes in the economic cycle given that demand remains relatively stable over time. Consumer staple analysts are forecasting for the entire industry, a positive double-digit growth of 23.9% in the upcoming year , and a whopping growth of 48.1% over the next couple of years. This rate is larger than the growth rate of the Singapore stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Bumitama Agri is lagging or leading in the industry.
View our latest analysis for Bumitama Agri
What’s the catalyst for Bumitama Agri’s sector growth?
Changing tastes in consumer preferences is becoming more disruptive than that of industry competitors. Consumers are predominantly leaning towards more health-conscious alternatives such as whole and raw ingredients. Furthermore, companies that are now emerging are latching on these trends with efficient business models. Over the past year, the industry saw negative growth of -16.3%, underperforming the Singapore market growth of 11.7%. Bumitama Agri leads the pack with its impressive earnings growth of 1.5% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 5.1% compared to the wider food product sector growth hovering in the twenties next year. As a future industry laggard in growth, Bumitama Agri may be a cheaper stock relative to its peers.
Is Bumitama Agri and the sector relatively cheap?
The food product sector’s PE is currently hovering around 15.48x, in-line with the Singapore stock market PE of 12.23x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.7% on equities compared to the market’s 7.7%. On the stock-level, Bumitama Agri is trading at a PE ratio of 10.49x, which is relatively in-line with the average food product stock. In terms of returns, Bumitama Agri generated 17.2% in the past year, which is 8.5% over the food product sector.
Next Steps:
If Bumitama Agri has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a food product industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the consumer staples sector. However, before you make a decision on the stock, I suggest you look at Bumitama Agri’s fundamentals in order to build a holistic investment thesis.