Financial Analysis and Valuation Report: BreadTalk Group (BAFI1045)

This report provides a comprehensive financial valuation of BreadTalk Group, a Singapore-based company in the bakery and food industry. It begins with a historical overview of the company, including its establishment, expansion, and stock price analysis based on announcements. The report delves into the company's revenue strategies, focusing on product innovation, marketing, and technological integration. It also includes a peer company analysis, comparing BreadTalk's financial performance with its competitors. The macro-level analysis examines external factors like government regulations, industry growth, and economic indicators that impact the company. The report employs various valuation methods, including dividend discount and free cash flow models, to assess the company's intrinsic value. It also explores the company's financial ratios, debt position, and market competition, providing insights into its strengths and weaknesses. The report concludes with an assessment of the company's overall financial health and investment potential, considering its revenue strategies, market position, and external factors.

Running head: FINANCE AND INVESTMENT
Finance and Investment
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Answer to Part 1.........................................................................................................................2
Answer to Question 1.............................................................................................................2
Answer to Question 2.............................................................................................................6
Answer to Question 3.............................................................................................................7
Macro Level Analysis............................................................................................................7
Government regulation.......................................................................................................7
Industry growth..................................................................................................................8
Industry income..................................................................................................................8
Inflation rates.....................................................................................................................9
Interest rates.....................................................................................................................10
Micro Level Analysis...........................................................................................................10
Market competition and goal...........................................................................................10
Debt position and operation.............................................................................................11
Answer to Question 4...........................................................................................................13
Answer to Part 2.......................................................................................................................16
Reference list............................................................................................................................23

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Answer to Part 1
Answer to Question 1
History
The bread-talk company was founded 19 years ago in 2000 when the founding
chairman developed the seed idea to sell breads and buns which were attractive and showed
creativity to make. The first store was opened in Parco Bugis Junction in July 2000 and the
second store in Novena square in the year 2000. It got listed in 2003 on the Singapore Stock
Exchange SGX. The headquarters of the company is in Singapore, and it has expanded to
become a global bakery brand across the globe. Due to various expansion opportunity the
headquarters of bread-talk company was shifted to KA Food-Link, in the year 2001. The
production capacity and increase in space and machinery happened in the year 2002. In
2015, there was a controversy raised against the quality of milk supplied by them (Martins,
Pinho and Ferreira 2017). They had also been accused of selling expired ingredients food but
it did not have any proven claims.
Analysis of stock price due to announcements:
The Bread-talk Company is a global company involved in the bakery industry and
supplying quality bakery products and beverages around the globe through various chains and
brands of outlets. The company is very much involved in delivering quality products to its
consumers to create brand recognition and sustainability. Since it operates its business under
various brands and chain of restaurants any news and announcements pertaining sensitive
information regarding to the company has an impact on the share price. Dr George Quek
Mneg Tong is the chairman of the company. The revenue generated amounts to SG$297.4
million till 2018. It provides employment opportunities to more than 6,900 employees. The
bakery group has its owned group of network for the bakery outlets in various parts of the

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world like PRC, Hong Kong, Malaysia. It also has the setup of franchise outlets across
Middle East and Asia. Bread Talk also made efforts to consolidate as well as improve the
underperforming stores in Singapore and China in the previous year. It has opened two
outlets in 2018, one at Thonglor in Bangkok and another at Northpoint City in Singapore.
The company aims to provide its customers with finest mix of culinary skills that involves a
variety of tastes. They have their own Research and Development team that looks after the
demands and feedback of its customers. The team presents different dishes every few months
ranging from local desserts to delicious dumplings and pastries.
In the year 2017 the company paid around dividend of 7 cents per share which
included final dividend and also special and interim dividend, this news of dividend payment
have an effect on the share price (Hail, Tahoun and Wang 2014). The share price starts to rise
on the date of announcement of dividend and falls just before the last date or the ex- dividend
date. Thus this factor has an effect on the financial performance of the company.
As it is evident from the financial ratio of the company it is seen that overall the
company has improved its gross performance but the net performance was poor due to factors
like increase in tax rate (Gamayuni 2015). The company entered into joint venture
agreements for the procurement of raw materials with a Japanese company. Thus this
significantly affects the cost of raw materials and thus the overall production cost of the
company, and ultimately it affects the margin of profit for the company (Pagotto and Halog
2016). Thus this news has an effect on the stock price of the company as this news is deemed
material and important announcement for the company. Bread-talk entered into Myanmar a
new country and thus wanted to expand business into new territories. This news is taken as a
positive news by the market and has a positive impact on share price.

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In 2018 the company expanded its operation using the 4orth brand group, which is
focussed in expanding the company business into new territories. The company entered into
various joint venture agreements for its acquiring of raw material as well as increasing
efficiency in production and distribution channel. The company has entered into various
agreements with various infrastructure providing companies to implement its expansion
policy with a strong and a rigid support (Swink and Schoenherr 2015). Thus any news of
procurement of servicers from external sources for increasing efficiency creates a positive
impact on the company and also on its share price as it will lead to increase in sales and
revenue for the company due to improved brand recognition.
Financial performance based on Revenue strategy:
Bread-talk being a pioneer in bakery innovation and baked products produces bakery
goods which are exquisite to its own bakery. The company employs various revenue strategy
and company strategy for the selling of its products. The company sponsors various cultural
events and introduces a special food product which is going to be available during that event.
Thus it creates a unique product which appeals the masses and they create a brand image. The
company sponsored an event in 2018 pertaining to the Singapore national day parade and
made a local product known as the golden lava floss and almost 120000 pieces of this product
were sold during that time period (Kim 2016). Also it produced a special crab muffin cake
and almost more than 11000 pieces were sold in its inaugural week.
Technology has the greatest impact on the modern day business as every consumer is
involved and affected by the technological innovation. Due to this factor the company is
involved in innovating its app and enter into agreements and bring out various offers for its
consumers. The company entered into an agreement with the grab pay company to bring
about loyalty offers for its consumers. They can avail cashbacks and discount offers on the

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company produce. Thus this strategy helps in retaining consumers and attract them and thus
ultimately enhance their revenue. The company launched a new app which was downloaded
more than 20000 times in the 4 month period of its launch. The company also has started an
offer where with purchase of any beverages the consumers can purchase a golden flask at
only 1$. Also they can avail a discount of 10% in a month from their last purchase, at any
brands and outlets affiliated to the company. Also the company offers 10% discount if the
consumers bring their own flask to the outlet during the purchase of any beverages. Thus the
company is also focused on reducing the cost of production by acquiring raw materials at a
reasonable cost. For this purpose the company is entering into various agreements with other
suppliers for cost efficiency (Chen, Wang and Qiao 2014). Thus the company is involved in
enhancing revenue as well as cost reduction strategy for its benefits. The credits for the
strategy of maximisation and consolidation has been given to the group that supported the
divisions in focusing on improving the current outlet portfolio mix.
Products and Services
Toast Box, Bread Society, The Icing Room, Food Republic, So Ramen , Thye Moh
Chan are some of its portfolio brands, while Nayuki Tai Gai, Din Tai Fung, Wu Pao Chun
Bakery, and Song Fa Bak Kut Teh are its Partner brands. These are some of the brands of its
portfolio of twelve brands. It has more than 850 stores at different locations around the globe.
The group has made the use of daily staples a healthy and a tasty statement for the
consumers. Thus creating a new way of eating habits among the consumers. The group has a
research and development team which is involved in creating delicious and tasty pastries,
desserts and local cuisines which are appealing to the general public. Every few months the
breadtalk company introduces new products in the market. The company has a vast network
of suppliers, and business logistics to send extereme good quality pastries and desserts to the
different stores. Also the chairman of the bread-talk company is an expert in the beverage and

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food industry and thus providing necessary expertise in the company. The famous products of
breadtalk which are the bestseller in breads are Sausage standard, Cheese Sausage, cheese
boat along with smart aleck and many more breads. Also the snow roll in the cake section of
the bread talk company is one of a kind and unique product which is produced only by this
company across the globe.
Answer to Question 2
Peer Company Analysis:
The company faces direct competition from the company Four Leaves. The company
is based in Singapore and operates a chain of around 40 stores in Singapore and makes a
direct competitor to the company bread-talk. The company is involved in providing exclusive
food products which is manufactured using up to date Japanese technology. The company
was formed in 1981 and has expanded ever since to various location across Singapore. Like
Bread talk Company operates its business under various brand names, the four leaves also
operates under various brand names and has an expanding consumer base. Since Bread talk
as a company operates and expands around the globe the four leaves is focused on expanding
and concretizing its business in Singapore. There is a direct competition between four leaves
and Bread talk in the Singapore market. The overall profit of four leaves in Singapore was
around 38.6 million us dollars while on a whole basis Bread talk had a profit of around 152.3
million dollars but if taken on a standalone basis for Singapore it comes to around 44 million
dollars. Thus it is a direct threat to Bread talk.
Bread talk is having financials which is way less than the industry average. All the
profitability ratio of Bread talk is way less than the median industry average making its
fundamentals in comparison to the industry a poor candidate. Along with the profitability
ratio, the liquidity ratio of the company is way below the standard level, raising question over

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the company ability to meet its short term liabilities. Although the asset turnover ratio of the
company was good but all other ratio of the company of the earning power is poor, thus the
overall expansion policy of the company is not in its favour. The overall debt level of the
company is greater than the industry median thus the company has taken a lot of financial
leverage. Thus the quality of financial position of the company is also in a poor state than the
industry. Thus the overall the quality of the company is in a poor state but it has a various
brand of opportunities also available to improve upon its revenue and sales. Thus the
company is in a poor state of affairs which can be revived and the company can show better
performance than its peers in the future.
Answer to Question 3
Macro Level Analysis
Bread Talk group limited is beverage and Food Corporation of Singapore, which has
its franchises outside of Singapore. The income, growth and government regulations of the
food and beverage industry influenced the growth of the Bread Talk group significantly (Lee
et al. 2016).
Government regulation
The influence of government rules and regulations on any industry is huge. The food
and beverage industry of Singapore is regulated by the government to control territorial and
institutional factors to maintain the viability and growth of the industry. The regulatory act of
government to prevent foodborne illnesses, create difficulties for the food and beverage
industry (Giap, Sasidaran and Anuja 2017). To ensure safety of food products government of
Singapore conducted a hazard analysis, established critical limits, put monitoring procedures
and identified critical control points (Lee et al. 2016). Bread Talk group faced many
challenges to maintain the restrictions imposed by the government.

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Industry growth
Thus, these restrictions influenced the growth and development of Bread Talk. Trade
restrictions and tariff policies imposed the industry affected the domestic and overseas
business of the company. Political stability and economic development are co-related terms
(Koh 2019). The stable political system helped in economic development and growth of the
country. The political stability and government regulations attracts the foreign direct
investment and proper environment for the business. The political stability of Singapore
pushed the growth of the company and facilitated to expand its business outside of the
country.
Figure: Revenue growth of food and beverage industry of Singapore
Source: (Satista 2019)
Industry income
In 2019, the revenue in the food and beverages industry of Singapore amounts to
US$366 million. The expected annual growth rate of revenue amounts to 20.2% by 2023 in
the food industry. The generation of revenue of the industry is greater in China compared to
other countries of the world, which is at US$22,102 million in 2019. The large market of the

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China helped the companies to get more customer base and grow the profitability. The
market volume of the industry will increase to US$765 million by 2023 (Rajaram 2014).
Even, there is growth in user penetration and it 26.3% in 2019 (Dhaliwal et al. 2016). The
expected user penetration will hit 31.1% by 2023. The growth of industry helped the
company to expand its business and earn greater profitability. As a result, the business of the
Bread Talk group also expanded and the net sale of the company spiked to S$609.8 million in
2018. The revenue generation of the company hiked to S$609.8 million in 2018.
Inflation rates
The change in price of services and goods for a time period is known as inflation. The
inflation rate of a country is a key economic indicator of growth. The role of inflation rate is
important, as it affects the analysis of macroeconomic indicators. The inflation rate of
Singapore declared by the Monetary Authority of Singapore, which is the central bank of
Singapore.
Figure: Interest rate of Singapore over the past five year
Source: (Tradingeconomics.com, 2019)

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The inflation rate of Singapore was remarkably low in 2016. The inflation rate of Singapore
decreased at slower pace from 2017 onwards. Though, for the last three months food inflation
of Singapore was steady. In July 2019, the annual inflation rate decreased to 0.4%, whereas it
was 0.6% in June 2019.
Interest rates
The effect of interest rates on the business of Breadtalk is significant. The business
will be at risk if the interest rate of the country fluctuates. The central bank of Singapore
decides and controls the interest rate for the economy, which helps in business growth. Last
recorded interest rate of Singapore was 1.74%. The interest rate of the country increased at a
faster pace. Interest rate of past five years represented in the graph.
Figure: Average overnight interest rate of Singapore
Source: (Tradingeconomics.com, 2019)
Micro Level Analysis
Market competition and goal
The operation of the Bread Talk Grourp limited helps to create highest level of
efficiency possible within the organization. The profit of the organization maximized due to

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efficient use of resources. The company took a lot of efforts to expand its business in the food
and beverage market of Singapore as well as the world (Giap, Nurina and Mulya 2015).
Though, the earnings of the organization will remain flat in the near future. The long term
growth startegy of the company need a strong foundation for a sustainable growth. To sustain
in the highly competitve market of Singapore and to spread its business globally, the
company is focusing on levarging technology.
Debt position and operation
The use of technology will improve the cost mannagement and operational
efficeiency of the company. It will also faciliate the brand expansion into new and existing
markets (Tan, Woo and Tan 2014). The cash and cash equivalents of the BreadTalk improved
and it was S$ 141 million in 2017. The repayment of loans, investing activity and dividends
of the organization increased the current liabilities to S$316 million from S$257 million.
However, with a net debt of S$51 million in 2018 the company has a healthy balance sheet
(Rahadi 2016). As the resouces are limited in the country, the companies of Signapore mainly
depends on the imported inputs. The biggest player in the food and beverage industry of the
Signapore is Fraser and Neave Ltd. The organization operates in the brewery, food, dairy
sectors and soft drinks.