LONDON BISCUITS BERHAD VALUE EVALUATION

London Biscuits Berhad is a confectionary conglomerate which hold its presence in Malaysia food industry. It is well known with its comprehensive cakes production line. Different from other snack manufacturers, London Biscuits focuses half of its resources towards the manufacturing and innovating of cake. This enable the company to operate with the advantage of very large economic scale as most of its plants and machineries are dedicated for single major type of product.  As the market is getting competitive than ever, existing conglomerate are fighting for their own pieces of pie, not to mention the entry of foreign products. Price war is often seen via promotions in different markets for this kind of products. In order to capture some market niche, the company has especially apply for the use of Disney characters trademark to distinguish their products from their competitors. This enables London Biscuits Berhad to leverage on Disney’s strong branding which is well established via media industry. Unfortunately, this kind of strategy cannot last long as consumer will eventually ignore the original brand with their mind positioning influenced by the package.

In my very own observation, consumers in Malaysia prefer crackers rather than cakes some of the time. As crackers consumption of the same price can last longer, it is more worthy than purchasing cake products. Thus, it eventually push down the sales of cake products. Also, cost of producing cakes are a lot higher as they need to undergo more procedures of manufacturing compared to other snacks which further heightened the cost. Tin box package is often used with crackers which ultimately makes it convenient for storage and also treated as a gift upon special occasions. This small difference leads to tremendous purchasing behavior in the end.

Based on its cash flow, recent figure incurred by the company is lower than it is 10 years ago. It is understood that this company undergo several acquisitions in the past. However, buying into companies that eventually suck up your cash, I don’t think it is worth it. Worse, return on both assets and equities are astonishingly low, which reflects the company poor deployment their resources. With its poor quantitative performance, I will filter this company out from my list. 
Stock: LONBISC Code: 7126