Singapore Stock Views - 'Petra' is Recommended to Buy

CIMB Research and DBS Vickers upgraded their ratings and target prices for cocoa firm Petra Foods Ltd after it announced plans to divest its cocoa ingredients business.

CIMB Research upgraded Petra to 'outperform' from 'under-perform' and raised its target price to S$3.77 from S$1.92, saying it views the company's move to focus on its branded consumer arm as a positive one.

By 0234 GMT, Petra shares were up 1.5 percent at S$3.36, having jumped 20.4 percent on Wednesday after it said Swiss chocolate maker Barry Callebaut was buying its cocoa business for $950 million. Petra shares have surged 82 percent since the start of the year.

Although cocoa ingredients account for 35 percent of Petra Food's 2011 profits, the significance of the business is declining as grinding margins fall, CIMB said. Shareholders can look forward to a special dividend of up to S$0.60, it added.

"Petra's evolution into a pure consumer play could spark a re-rating," CIMB said, adding that its balance sheet will be strengthened from 1.7 times net debt to a net cash position.

DBS Vickers said Petra's branded consumer division has better margins and more stable growth, noting that the company is also an attractive acquisition target for global chocolate confectionery firms.

The brokerage upgraded Petra to 'buy' and raised its target price to S$3.97 from S$1.95.