The Trends At Fraser & Neave Holdings Bhd (KLSE:F&N) That You Should Know About
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Fraser & Neave Holdings Bhd's (KLSE:F&N) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Fraser & Neave Holdings Bhd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = RM515m ÷ (RM3.7b - RM782m) (Based on the trailing twelve months to December 2020).
Thus, Fraser & Neave Holdings Bhd has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 18% generated by the Beverage industry.
See our latest analysis for Fraser & Neave Holdings Bhd
In the above chart we have measured Fraser & Neave Holdings Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Fraser & Neave Holdings Bhd here for free.
What Does the ROCE Trend For Fraser & Neave Holdings Bhd Tell Us?
While the returns on capital are good, they haven't moved much. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line
The main thing to remember is that Fraser & Neave Holdings Bhd has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 68% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you'd like to know about the risks facing Fraser & Neave Holdings Bhd, we've discovered 1 warning sign that you should be aware of.
While Fraser & Neave Holdings Bhd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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About KLSE:F&N
Fraser & Neave Holdings Bhd
An investment holding company, primarily engages in the manufacture, sale, trading, and distribution of soft drinks, dairy, and food products in South East Asia, the Middle East, Africa, China, and internationally.
Excellent balance sheet established dividend payer.