Forum Archive Index - May 2001

[Lyall Taylor <lyall.taylor@xtra.co.nz>]

Alright - this stock really is in need of some perspective.  

The share price at the moment is still largely being driven by emotion,
and I wouldn't be surprised in the slightest if it slid all the way down
to $1.00-$1.20 range.  There is definitely a strong downward trend going
on, and anyone considering buying at the moment should probably hold
off, due both to the trend, and the fact that it aint going anywhere
until the market sees some positive signs and renews there confidence in
it.  We are still dealing with a stock that many consider risky by the
nature of there products, and that has recently disappointed.  It also
has no proven record of growth, and many arn't even convinced that it is
a viable company.  With an enterprise value per share to earnings of
around 23, there is still pleanty of room for downside.  So the first
point really is that anyone who thinks in the short term it is going
anywhere is obviously mistaken.

I currently hold, with respect to my portfolio, a large amount of
these.  My current average price is around 192, so I am sitting on a
fairly substantial loss.  I must admit that I fall remotely into the
'fools on call' category just described, as I am fairly new to the
market, and was lured into over-optimism by the bullish earnings
projection and are now paying the price.  At a time like this, all a FRU
holder can do is set aside all the market hype, and doom and gloom
merchants, and reevaluate the story, and to me, it is still good. 
(Hence why I haven't, and don't intend to sell).

Excluding UK, we are looking at a NP of $21m, from NZ and AUS
operations.  This is up around 100% from last year, of which UK was not
an influence.  Now even the biggest skeptic of FRU has to acknoledge
that this is an impressive feat.  There is still pleanty of growth left
in AUS, and I would expect that this figure could easily growth to $40m
in the next 3-4 years.

At the current price of $1.50, the entire company is valued at $187.5m. 
The p/e therefore is 8.9, and on earnings of $40m, around 4.5.  Too many
people have forgot the enormous success they have achieved in this part
of the world.  FRU could withdraw from UK now, and hence represent a p/e
of 8.9 with pleanty of growth potential left in AUS and some in NZ.

Now there is no denying that the UK saga has been an absolute joke. 
Their performance has not been fantastic, but it hasn't been that bad
either when you put it in context.  On the other hand, their projections
have been so bullish that it is boarding on rediculous.  That of course
is clear now - I wish I had seen it clearer a few months ago.  We are
looking at a market of 58 million people.  Did they expect to simply
waltz up and crack the market within a year, especially considering
their weak balance sheet, and Red Bull's dominant market position.  The
current hold ups need to be seen more as a delay, rather than a signal
of failure.  People need some perspective.  So things arn't as fantastic
as we first though?  They still are going to post an increase in
earnings of around 20%, and increase revenue by around 50%.  This in
itself is not a bad result, but bad by comparison.  BCH increases its
earnings by 20% and we know all about their p/e.

I personally, believe V is a fantastic product, and have great faith in
its success.  Around Auckland Uni where I study, it is about the only
energy drink you see people drinking.  Now distribution is looking
better in the UK, with the marketing campaign to be launched, they could
easily turn it around within a year.  They have done it in NZ, AUS - why
not UK?  They only need to snag a small piece of the market, and they
could be looking at earnings of $20m within a couple of years.  

The reality is, V will begin (as it is now) as a small, annonomous drink
on the shelf, but with marketing, people will begin to try it, and,
owing to the drink's quality, will enjoy it and continue to drink it. 
Establishing a brand takes time, but once you get a consumer base going
your talking huge cash flow.
We could be looking at earnings of around $25-$30m if UK breaks even
next year, with which a share price of $3.00 would represent a p/e of
12.5!  

People take a far to short term view.  People want results over night,
and I do conceed that FRU management have a lot to do with  these
expectation.  If they had only promised 20% growth, they share price
would be above $2.00 at the moment.  The reality is that FRU have one of
the best stories, and growth potential, on the NZSE.

So the conclusion is that FRU great story hasn't changed, yet everyone
has disregarded this company, and is now treating it like it has failed
already.

To me, thinks just arn't as bad as everyone is making them out to be. 
Don't lose faith FRU holders.  I admit, it takes great tenacity to hold
when everyone else is screaming DUMP, but in the long run you will be
rewarded.


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