Finsbury Food Share Discussion Threads

[aleman] 16/5/2012 13:13

That's quite a run of buying but it's not making much headway. (Own up - who got a better price than me?) It suggests the recent weakness may be a big sell being worked in the background.

[boffster] 15/5/2012 22:05

Lol Woody, sadly reports of my wealth have been greatly exaggerated!

I do plan to buy the whole company, but only in small chunks over a period of about 50 years!

[woodcutter] 15/5/2012 20:27

If it drops much more boffster can put a bid in.

I don't normally promote other shares i own but i think ZTF is worth a look at present. I know the price has risen quite a bit recently and Aleman has noted this but how many businesses do you know in the current climate that are able to pass their material cost on to suppliers and have the suppliers accept extended lead times due to raw material shortages. New extended factory being built and taking on additional staff looks like a very promising company despite being illiquid.

Sorry not meant to be a ramp just for interest. I do hold and will look to buy further on weakness.

Woody

[topvest] 15/5/2012 18:39

There is great value to be had here on a 12m forward view. Provided management avoid acquisitions, the deferred consideration all gets paid and trading remains stable then things will be looking very good soon. Debt is under control and falling so the cash flow will soon start to look compelling. Patience needed in these markets though!

[woodcutter] 15/5/2012 18:23

Aleman, as usual your detail is compelling, very interesting synopsis on NF. My feelings fwiw were a take out value of about £30/40m in the current climate but lightbody would be the key player and it's impossible to know what he thinks.

The thing that keeps me interested is the potential earnings multiples as the debt reduces, as we can see there has continued to be investment in production machinery and although i haven't done any numbers it looks to be keeping pace with depreciation so it's not just debt that's being paid down.

Anyway it's immmaterial as i think it's unlikely to be sold while they can still bring the debt down, at some point though when the debt level is reduced it may become a very attractive proposition.

Woody

[aleman] 15/5/2012 17:23

Northern Foods was taken out last year. EBITDA was around £70m and the take out price just shy of £350m after £200m debt and £150m pensions deficit (which the acquirer had to do a deal on) so an EV/EBITDA of 8-10, depending on the pension. The market price (ie, without takeover premium) of peers in FIF's sector gives an average EV/EBITDA of 6.6, based on 2012 forecasts, according to PG's forecast. A ratio of 6 would put FIF at around £40m after deducting the debt and more typical take out price of 8 would put us at £60m+ after deducting the debt based on expected 2012 EBITDA of £12m. FIF is 3 times undervalued copmared on a market price and 4.5 times on an acquisition premium price.

Northern Foods had a weak balance sheet, with negative shareholders assets, as it struggled with debt and the pension deficit, and was more dependent on the big 4 supermarkets than FIF with a basically flat trading history over the previous years. FIF looks a much stronger business on a much weaker rating.

[woodcutter] 15/5/2012 16:08

Another point to consider regarding the value of the business. If they return to paying a divi of just 1p the two main shareholders still in the business, between them, will share over £200K in divi payments, not insignificant. Clearly there would need to be some considerable up lift in share price to justify a sale.

I just don't see the valuation at £13m i know the market does but could you imagine selling for £15m-£20m i just can't see that. If you had cash flow/share of 22p and finance costs of 7p/share and reducing, you can see the divi coming back over the next few years to it's previous position of over 2p/share, over £400K in the pockets of mr lightbody et al.


Woody

[woodcutter] 15/5/2012 15:40

Reinforcing Alemans comments it's hard to believe that a market cap of £13m and cash flow of £12m. Still even when it was paying a divi in 2008 the pe was only about 5 then, seems only a matter of time before it's either acquired or when the divi starts we see some move forward in the share price

I'm not sure if this makes sense but much has been said about the value of the intangibles and their impact on the balance sheet, negative equity without them, so with a market cap of £13m and the intangibles giving a NAV of £45m at least gives some comfort that if acquired we could expect a decent buyout price. I can't imagine with the cash flow and market cap verses NAV it could possibly be sold on the cheap. In essence the intangibles are holding up the true value of the business to some extent.

The one thing we need to be mindful of with intangibles particularly in relation to acquisitions is when a company is purchased it is invariably at a price above it's stated value but the acquirer sees something in the business thats worth paying extra for. The acquired company may well know it's true worth but can't generate internal goodwill and add it to it's balance sheet. If the acquisitions made by FIF were not generating income and cash then we would expect to have seen some of the goodwill written down.

So valuing some of these intangibles is in itself very intangible, no pun intended.

Woody

[callumross] 15/5/2012 13:42

Good find, Skinny. Interesting analysis.

[aleman] 15/5/2012 11:00

I jumped the gun a bit on some dividend cheques due very shortly. I never thought I'd get under 25p again - I was quite happily topping up higher. It's absolutely crackers that the market cap is back to pre-working cap operating cashflow again. (£11.4m last year, £12m forecast this year and £12.4m expected for 2013.) I assume some staff have no idea how to value the company and need to sell their options for their own cash requirements.

[woodcutter] 15/5/2012 09:23

As we all know many companies have significant value attached to intangibles particularly where brands are concerned, although brands may not be the case with FIF.

FIF has retained the value of it's intangibles pretty steady and has not written them down either through impairment nor against the P&L so the board must consider them to be of value, despite the possible overpayment for acquisitions.

I might be wrong but i don't consider the wording on banking covenants to be significant they are meeting their interest payments comfortably and paying down the debt so this isn't a problem in my opinion.

The only concern and perhaps one possible reason why investors are reluctant to purchase is the possibility of downward pressure from the main supermarkets on FIF product pricing. Tesco's etc will be well aware of the profits their suppliers are making and if they see them increasing they will most likely look to see reduced prices. And to be fair there is still significant debt, manageable but significant. Then there's no divi which a lot of investors are currently looking to gain. The flow of funds into dividend paying trust has mushroomed over the last year so you can expect the same with shares.

It's one for the long term, if your here to make a return inside twelve months then best look elsewhere but if you're in for the long term and top up on dips like now then i think it will be very rewarding.

As the contrarian David Dreman would say, sometimes you can wait years for value to be addressed, patience is a virtue.

Boff i haven't bought any more yet but it isn't going to move up quickly so just waiting to see how much further it might go. When it shows signs of levelling i'll be there. It's my third biggest holding now, behind SGI and ZYT.

Bought a few more TRS this morning on the back of the trading statement

woody

[jpjp100] 14/5/2012 21:11

callumross, the balance sheet is the main issue imo, specifically the intangible assets being such a large proportion of the assets

[callumross] 14/5/2012 16:13

Thanks for that explanation re the covenants, aleman. Not deramping by raising these questions. Thinking the share price is way undervalued in fact. Just trying to find a rational reason why the shares could be so low, so highlighted these possible causes.

[aleman] 14/5/2012 13:59

Net debt/EBITDA has improved steadily from the 2009 peak of 4.6 to 3.1 at the interims and an expected 2.8 in June. There doesn't seem likely to be a covenant problem there.

The HSBC facility was reduced to £44m and had £7m spare at the last full year so headroom should exceed £10m this time. Covenant tests are

Net debt/EBITDA
Interest cover
Debt Service cover

I think I read some detail about them somewhere but can't find anything. I didn't get the impression there might be a problem as they were improving so quickly.

I wonder if any of the share price weakness may be down to the poor weather which may have slowed sales a touch.

[boffster] 14/5/2012 13:57

One or two buys coming in.. any of our gang responsible? ;)

[callumross] 14/5/2012 12:52

What would worry me is the folowing from recent interims:

"Our task remains to trade through these tough times, stay within banking covenants, retain shareholder value and maintain recent growth trends to reach the next milestone of annual sales of over GBP200m. "

(a) they felt the need to comment that they must stay within banking covenants which suggests to me that they are close to breaching them.

(b) they only speak about retaining shareholder value i.e justifying the current share price, rather than enhancing shareholder value.

[aleman] 14/5/2012 12:04

Well, I've got a little more cash coming through in the next week or so. I would have thought FIF would be first port of call at this price but there are amazing prices all across the market at the moment and they are jumping about a bit so I don't actually know which I will plump for.

Do we think it might still be staff selling options shares? I can't think why anyone else would sell at this price given the track record of recent years and the steady forecasts.

[woodcutter] 14/5/2012 11:41

Just can't believe we've been presented with a further buying opportunity at this price, thought we'd seen the last of these mid twenties opportunities. Once FIF get around to paying the divi i can see this moving very quickly.

I think many investors, myself included, are looking at yields and anything with debt is being avoided but we need to be mindful there's good and bad debt and if you could quantify it like that the FIF debt is very manageable with the cashflow.

I'm afraid it's a sign of the times really,

debt = uncertainty = fear = panic = buying opportunity.

Woody

[bonio10000] 14/5/2012 11:17

I'm a long term investor - so not overly fussed.

The short terminsm of the market does amuse me though. The sun will still rise in the morning and I will still have afternoon tea with a cake.

[boffster] 14/5/2012 11:12

Careful Bonio, you're starting to sound as bitter as me

[bonio10000] 14/5/2012 11:09

Clearly, if spain has issues then people in the UK with Gluten Allergies will suddenly be cured and stop buying free from products.

[boffster] 14/5/2012 11:04

Well the P/E was approaching the dizzy heights of 4, now back to 3 again!

[bonio10000] 11/5/2012 12:35

Still not sure why people see FIF as being linked to the economy.

If you need free-from products, you won't suddenly buy Hovis and people are unlikely to scrimp on £8 for a branded Kids cake.