CP FOODS (CPF) has become a food giant in the region during the last 20 years, with analysts tending to make recommendations based on the price of chicken and pork in Thailand and in the region.
CPF is a leader not only in poultry, but also seafood and livestock feed with presence in many emerging markets in Asia. It holds a controlling stake in CPALL.
Due to various factors at work, CPF has a significant volatility in quarterly profit. For the last few quarters, profit has been on the rise as it has gained market share, added new businesses, at least one of its products has seen margin improvement.
The chart below shows share price and profit volatility. For now, investors are buying the stock on expected strong profits in the second quarter of 2020 from the rising price of pork in Vietnam and Laos, and increased profit of its Chinese subsidiary engaged in selling feedstock in the region.
Analysts claim that lockdowns have not reduced the volume sales, and have caused unexpected price rise in a few countries due to disruptions caused by the lockdown.
Once the world returns to normal production level, prices may return to normal, lowering the quarter on quarter profit growth and correction in its share price.
Further, approval or rejection by the Thailand authorities looking into monopoly status of proposed acquisition of Tesco retail stores by CPALL may cause sudden rise or correction in CPF share price.
In March this year, a CP-led consortium which includes CPF, CPALL, and CP family won the bid to buy Tesco for $10.6 billion US. However, rumors are that the consortium is still short of funding by $3 billion.
Any positive or negative news in the acquisition may lead to sharp price move for CPF. The stock is hard to value on its profitability due to this pending event, and future of CPALL with or without Tesco. Hence, we advise our readers to trade this stock with caution.
