On Friday, January 1, 2016, the Russian finance ministry formally announced that it would initiate legal proceedings in the English courts against Ukraine over the non-payment of a US$3 billion sovereign debt.

Food Empire Holdings Limited operations were mainly in these two countries.Following the above announcement Food Empire's stock price tumbled all the way to a meagre SG$0.21 per share. Should investors sell their shares in Food Empire and cut their losses?

The most recent full-year of accounting and financial data for Food Empire is for 2014.Use the data provided in Tables 1-6 to answer the questions below.

Required:

(a)

Compute the financial ratios for Food Empire in 2014 and compare these ratios to an industry benchmark.Briefly interpret each ratio.

(12 marks)

(b)

Value the shares of Food Empire in 2014 using the company's assets.

Note: the exchange rate is SG$1.43 per US$1.

(2 marks)

(c)

Using the data for Russia calculate the cost of equity (required rate of return) for Food Empire in 2014.

(2 marks)

(d)

Value the shares of Food Empire using the constant dividend model and the constant dividend growth model.

Note: the average dividend growth rate from 2000 to 2014 was 9.84%.

(4 marks)

(e)

Value the shares of Food Empire using peer multiples.

(5 marks)

(f)

Advise investors on the best course of action to take. Rationalise your decision.

(5 marks)

(Total marks: 30 marks)

Food Empire Tables All tables are sourced from Food Empire: Valuation and Investment Case by HBS W17153 Table 1: Company Characteristics of Peers NAICS No. of Employees Revenue FY Book Value 2014 Debt/Equity FY 2014 US$ millions US$ millions Food Empire 311,920 626 250.00 222.00 0.3787 CCL Products (India) ltd 311,920 350 119.50 121.10 0.2400 Dongwon F&B Co ltd 311,710 2,350 1,704.50 817.60 0.2000 Ottogi Corp 311,999 3,231 1,692.00 1,231.80 0.1100 Petra Food Ltd 311,351 5,970 504.00 470.50 0.1600 Pioneer Food Group Ltd 311,211 8,099 1,673.70 1,145.30 0.1400 Premier Food plc 311,999 3,848 1,551.30 2,841.80 0.4800 Super Group ltd 311.920 1.233 425.80 477.70 0.0300 Note: NAICS = north American Industry Classification System = FY fiscal year