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Total Produce (TOT:ID)

  • Mkt Price:  EUR 0.38
  • Mkt Cap:  EUR 125.4 mio
  • Net Int/EBITA%:  8.7%
  • P/E:  5.3
  • P/S:  0.05
  • Yield:  4.7%      

With two recent deal announcements, I decided to take another look at my TOT valuation, following on from here and here.

First was the purchase of a 50% stake in Frankort & Koning, a Dutch fresh produce company. Like I’ve said, Total just need to keep doing deals like this every few months..! F&K has EUR 296 mio in Revenues – I’ll ignore this as I’m assuming Total will account for this as a JV (i.e. simply record a share of net profits/losses). On average, F&K has earned Net Income (after Minorities) of EUR 2.7 mio. TOT’s 50% share should improve its Net Income by EUR 1.35 mio. Grossing up for Interest & Tax, I assume a EUR 2.308 mio improvement  to Adjusted EBITA. Cash/Interest impact is de minimis, as Total only paid EUR 6 mio upfront out of a potential Consideration of EUR 15 mio. This is more than offset by the Cash impact of their second deal.

Second, Total announced the sale of its 50% stake in Capespan Europe, a JV with Capespan. TOT receives EUR 8.5 mio Cash, plus a 20 mio new Capespan share issuance. This equates to a total EUR 13.03 mio, a marvellous price for 50% of a business that earns an annual GBP 2.0 mio in Operating Profit. Of course, this should decrease TOT’s Adjusted EBITA by GBP 1.0 mio, or EUR 1.196 mio, and I’ll assume a net impact on Earnings of GBP 585 K, or EUR 0.7 mio.

Therefore, Adjusted EBITA should improve from EUR 46.89 mio to EUR 48.0 mio. With Net Interest essentially unchanged, we should see Net Interest/EBITA improve from 9.0% to 8.7%. After Minorities, Total’s Operating Margin should improve from 1.36% to 1.4%. As my previous 0.125 Fair Value P/S Ratio was reasonably generous, I won’t increase it, but my resulting Fair Value of EUR 355.5 mio reflects a marginally higher Debt Capacity. Of course, I also previously incorporated a Fair Value 10 P/E Ratio into my valuation. Noting the positive & negative JV impacts above, plus a minor Net Interest Expense impact, I calculate a EUR 678 K improvement in Net Income. This is worth an increase from EUR 6.92 cents to EUR 7.13 cents in Adjusted Diluted EPS per share.

But let’s return to the 20 mio new Capespan shares Total Produce will be receiving. TOT has, of course, been already building a stake in Capespan, so its shareholding will increase from approx. 66.343 mio to 86.343 mio shares. In percentage terms, its stake increases from 20.03% to 24.6%. I’m basing this on Capespan’s increased share count of 351.22 mio shares. It’s a pity Capespan doesn’t just do the decent thing and draw on their existing 32.396 mio Treasury Shares. As I’ve mentioned before, it’s not clear to me if management can utilize these shares in any way – but if we exclude them (as is usual), Total Produce’s effective stake in Capespan is actually more like 27.1%.

So, with Total and Capespan now disentangling their JV arrangements, TOT’s left with a significant/controlling ‘financial’ stake in a changing business (with a new CEO), alongside 2 other financial players with significant stakes. As I’ve speculated previously, it looks like Capespan is heading towards an endgame here that should be attractive for Total Produce financially and/or strategically. Either way, due to the increased stake(s) and the likely timescale involved, I’m now prepared to include TOT’s Capespan stake as another separate component in my valuation. The market value of TOT’s increased stake (@ ZAR 2.40) is ZAR 207.2 mio, or EUR 19.4 mio EUR, but I’ll haircut this by 25% to reflect the fact it’s not immediately realizable. I also considered incorporating Total’s (clearly undervalued) Investment Property, but ultimately I’m happy to consider this an offset to TOT’s Pension Deficit. Therefore, we can arrive at a Fair Value of:

((EUR 0.07126 * P/E 10) + (EUR 355.452 mio / 329.887 mio shares)) / 2 = (EUR 0.8951 per share + (EUR 19.443 mio * 75% / 329.887 mio shares)) = EUR 0.939 Fair Value per share

This offers 147% Upside Potential vs. the current EUR 0.38 share price. The increased Upside may prompt me to increase my portfolio stake from a current 3.7% to between 4 to 5%.

  • Tgt P/E:  13.2
  • Tgt P/S:  0.12
  • Fair Value:  EUR 0.939
  • Upside Potential:  147%