Total Produce – A Fresh Perspective

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activist investors, Balmoral International Land Holdings, Carl McCann, empire-building, Fyffes, Greencore Group, intrinsic value, Irish shares, Irish value investing, private equity funds, share buyback, TOT, Total Produce, Warren Buffett

…

Total Produce (TOT:ID, TOT:LN) was one of my very first blog write-ups, back in Nov-2011 at EUR 0.39. [And I’ve written about it a number of times since]. Less than two years later, we’ve enjoyed a nice double on the stock – which is now trading within spitting distance of my original EUR 0.882 fair value target. This warrants a fresh perspective… But looking back, now I remember – even then, I offered up a very specific perspective:

So we’re talking a business that really runs itself, just what I like! Particularly as I don’t have great respect for management (except if you compare them say to Greencore Group (GNC:ID) management – whose shareholders may finally be put out of their misery with a potential bid, rumoured to be coming from Dubilier Clayton & Rice). Carl McCann is Chairman, while his brother David’s in the Chairman seat over at TOT’s ‘sister’ company Fyffes (FFY:ID), and neither is really a patch on their father Neil McCann (I was sad to hear he passed away recently) who joined Fyffes in 1948. I think of the crazy worldoffruit.com online effort in the v late 90s (which ‘…received a very positive reaction from within the produce industry and looks set to dramatically change the way in which fresh fruit and vegetables are traded across the globe…’), the lack of earnings growth in the past few years, the ludicrous de-merger of Fyffes, Total Produce & Blackrock (now Balmoral Int’l Land Holdings, whose shares subsequently collapsed & are now delisted), etc.

I also look at the excessive B/S Cash of EUR 89.6 mio, and I’m bemused (and slightly alarmed) to remember a colleague telling me many years ago his impression that having large amounts of Cash on hand appeared to give management the warm and fuzzies, and they appeared to enjoy playing the banks off against each other for deposits (and perhaps even some jolly currency switching). All very well, I confess I’ve been through all that myself professionally, but always felt frustrated at having giant hoards of Cash on hand to invest – in an ideal world, I knew the best thing for shareholders and Return on Equity was to have zero Cash and just come in each day and draw down/pay down on a Debt/CP facility. With TOT, of course, the obvious answer to this Cash is frequent execution of small/medium sized acquisitions across Europe (similar to what DCC (DCC:LN) has done for years in its Energy business) – considering the nature/scope of potential business acquisitions, I think there’s a marvelous opportunity here to hoover up cos and double their operating margins v quickly through cost elimination and economies of scale.

Then of course there’s the silent but deadly fart in the room…finally figuring out it’s time to swallow their pride and reverse the Total Produce/Fyffes break-up – a nil-premium merger is the obvious way to achieve this and I imagine could easily yield 2-3 years of decent EPS growth even if the underlying business remained unchanged. But kudos to management for the 22 mio share buyback last year…! I was impressed, can you please repeat?

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Total Produce & FBD – Results

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Capespan, Combined Operating Ratio, EHEC scare, EPS guidance, FBD Holdings, Total Produce

Total Produce (TOT:ID or LN):

I think yesterday was the first time I’ve posted as a ‘hostage to fortune‘, buying and posting just ahead of a company’s annual results! So where do we stand now?

I was unfortunately expecting to be disappointed by the level of disclosure on certain items: No mention of the dissolution of their Indian JV with Tata – but revenues weren’t significant, and profits were obviously non-existent, and I far prefer they concentrate on a consolidation strategy in Europe, so who cares…

Total Produce – Seeing Green!

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Capespan, Fyffes, stock fungibility, technical analysis, Total Produce

[Reference here, here and here]

Total Produce (TOT:ID or LN) is releasing 2011 Preliminary Results @ 7am tomorrow, Tuesday March 6th. Consensus 2011 EPS appears to be around EUR 0.071, bang on my own estimate. This out-turn would put TOT on a 6.3 P/E – far too cheap for such a defensive stock with plenty of firepower for acquisition led growth!

In fact, one of the cheapest companies they could buy is…themselves! With Fyffes (FFY:ID or LN) buying back 32.2 mio shares in Sep-Nov last year, I was v disappointed to see no such announcement from Total Produce. Especially with such a cheap share price, and when you note they’d EUR 89.6 mio of cash lying idle when they reported their interims. I hope to see some comment/plans in this regard tomorrow – failing that, management definitely needs to justify themselves with a more aggressive future acquisition strategy…

Total Produce – Eat More Fruit!

Tags

Capespan, Net Interest/EBITA, Price/Sales, Total Produce, value investing

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.

Total Produce – So, What You Buy Down The Market?

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Bidvest, Capespan, IFG Group, Net Interest/EBITA, pdosullivan, Price/Sales, PSG Group, share buyback, Total Produce, Zeder

Total Produce (TOT:ID)

• Mkt Price:  EUR 0.39
• Mkt Cap:  EUR 128.7 mio
• Net Int/EBITA%:  9.0%
• P/E:  5.6
• P/S:  0.05
• Div Yield:  4.6%      

Time to update my recent Total Produce post. First, a shout out to Philip at pdosullivan who emailed me to highlight Total’s increased stake in Capespan Group Ltd. There are some good follow-up comments here also. A good spot – I looked some years back, and somehow concluded Total’s shareholding was in a Capespan sub. rather than the parent company?! Based on this, I mistakenly decided not to revisit this as a component of my TOT investment analysis. Then again, the lack of transparency and disclosure from Total regarding this shareholding is rather infuriating.

Total Produce (TOT:ID) – A Fruity Delight?

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Balmoral International Land, DCC, Fyffes, Greencore, Margin of Safety, Net Interest/EBITA, pdosullivan, Total Produce, value investing, valuestockinquisition

Total Produce (TOT:ID)

Mkt Price:  EUR 0.39

Mkt Cap:  EUR 128.7 mio

Net Interest/EBITA%:  9.0%

P/E Ratio:  5.6

P/S Ratio:  0.05

Dividend Yield:  4.6%      

Fair Value:  EUR 0.882

Upside Potential:  126%

Total Produce is Europe’s premier fresh produce provider. Growing, sourcing, importing, packaging, distributing and marketing over 200 lines of fresh fruits, vegetables and flowers, the Total Produce group distributes some 250 million cartons of fresh produce annually to the retail, wholesale, foodservice and processing sectors across 19 countries in Europe.

2016 – The Great Irish Share Valuation Project (Part II)

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Circle Oil, CRH, Escher Group Holdings, First Derivatives, Galantas Gold Corp, IMC Exploration Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, iShares MSCI Ireland Capped ETF, Keywords Studios, TGISVP, The Great Irish Share Valuation Project, Total Produce, Tullow Oil

Continued from here:

Company:   First Derivatives   (FDP:LN)

Last TGISVP Post:   Here

Market Cap:   GBP 494 Million

Price:   GBP 2,038p

My last write-up was bang in the middle of a sickening price reversal. While FDP got nearly sliced in half at the time, my price target’s been massively adrift ever since. Clearly, I was wrong to speculate FDP’s consulting business* might eventually grind to a halt – as banks continue to retrench, we’re actually seeing an increasing reliance on IT outsourcing, while reduced head-count & market evolution demanded ever greater technology capacity & automation. [*Let’s not forget consulting (64% of revenue) remains FDP’s primary business, and its margins are far less scale-able than software]. And revenue’s continued to forge ahead, at an average 28% pa in the last three years, assisted by FDP’s serial acquisition strategy (three new acquisitions & a consolidation of Kx Systems in the last 18 months, or so). Earnings growth trailed though, as FDP essentially bought revenue/technology (rather than profits…with new Big Data & IoT opportunities also being touted) & the share count’s been diluted almost 25% in the last couple of years. [Even on a revenue basis, those acquisitions look damn expensive – averaging over 7 times sales, vs. a 4.2 P/S multiple for FDP]. But FY-2016 was clearly a real gang-busters year, boasting 41% revenue & 33% EPS growth.

However, we’re still seeing a huge disconnect between EBITDA & operating free cash flow margins (Op FCF: Operating cash flow, less net PPE/intangible expenditure). But presuming software is the ultimate driver of the business, EBITDA will become increasingly relevant: A decent compromise for now is to use an adjusted margin, averaging the latest 19.9% EBITDA margin & Op FCF margin of 7.2% (noting a prior year margin of just 2.6%) – a 13.6% adjusted margin deserves a 1.33 Price/Sales ratio. And noting FDP’s financial strength (with net debt of just £15 million), we can adjust for (surplus) cash & also add a debt adjustment. [Based on this adjusted margin, I calculate another £23 million in debt (at an assumed 5% rate, for acquisitions etc.) would still limit finance expense to 15% of adjusted margin – as usual, let’s apply a 50% haircut, just to be conservative]. Of course, we also need to value FDP as a growth stock: While earnings growth has accelerated to 33%, we should still recognise the huge/ongoing disconnect vs. cash flow (& reported earnings, which are now about 40% lower than adjusted diluted earnings) – limiting ourselves to a 20.0 Price/Earnings ratio, based on adjusted diluted EPS, seems only prudent (or maybe even generous):

2016 – The Great Irish Share Valuation Project (Part I)

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Aryzta, Celtic Phoenix, Formation Group, Fyffes, Hibernia REIT, Independent News & Media, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Kerry Group, Kingspan Group, Mainstay Medical International, Origin Enterprises, TGISVP, The Great Irish Share Valuation Project, WisdomTree ETF

Um, apologies, the blog’s been quiet since early last month – though I’ve certainly been keeping up with readers via Twitter…Good Lord, I’m now up to 25K+ tweets!? Actually, I’ve been more than usually focused on stocks both old & new in my portfolio. Which seem to be increasingly bifurcated between special situation stocks where I continue to engage with/push management to enhance and realise shareholder value, and growth stocks (at the right price) where I can sit back & watch smart management compound shareholder value over time.

Hmmm, put it like that & growth stocks seem like the far more compelling choice..!? Though in reality, each presents their own unique risks/opportunities. And for me, somewhat perversely, one tends to inspire the other…dealing with recalcitrant management can inspire me to seek out smartly managed growth stocks, but actually seeing it done right, such companies also highlight the compelling value lurking out there just waiting to be tapped (sometimes, literally, overnight) if only management would come to their senses (or a third party steps in & does it for ’em).

Anyway, a little break’s a good thing – and we’re all feeling much better now, with most markets recovering their Jan/Feb losses this month. Hopefully, this new-found momentum will continue (at least ’til the usual ‘Sell in May & go away’ debate!), as markets generally remain flat/down over the past year – it’s been a tough period for nearly all concerned (spare a thought for those poor billionaire hedge fund managers!), clearly exacerbated by oil’s elevated volatility & influence.

And as promised, a good time to kick-off The Great Irish Share Valuation Project, with the ISEQ on a breather for the past year (down 0.6%) (but still over 40% off its all-time high, as set nearly a decade ago now), and the Celtic Phoenix offering more opportunity than ever… Long-time readers will be familiar with TGISVP (here’s my kick-off posts from 2012, 2013 & 2014), where I attempt to analyse & value every listed Irish stock out there (and usually piss off some tired & emotional shareholders in the process). The great thing about the Irish market is its size…one of the few globally (with about 70-80 stocks, in total) which actually presents investors with the opportunity to really get down & dirty with every single stock. And it’s a real stock pickers’ market, as I’ve previously highlighted:

‘And it’s worth noting brokers often segment the Irish market into very different sector/exposures. And so, accordingly, it tends to attract pretty dissimilar investor constituencies, who may only focus on: i) a handful of the largest caps, regardless of valuation & exposure, ii) stocks which (may) offer cheap/alternative access to overseas growth (a surprisingly large number of Irish companies are UK/Europe/globally focused), iii) stocks offering domestic exposure (notably, economic pure-plays are actually pretty rare), iv) a listed commercial & residential property sector that’s only emerged in the past couple of years, and finally (& perhaps most notoriously) v) a (junior) resource stock sector that’s been decimated in the last few years.‘

Zamano…So, What Now?!

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Irish shares, Irish value investing, mobile content, mobile payment, Pageant Holdings, Ross Conlon, shareholder activism, takeover offer, Zamano, ZMNO

It’s 18 months since my original Zamano (ZMNO:ID, or ZMNO:LN) write-up:

‘Zoom, Zoom…Zamano!’

Maybe I should kick off with an update…but if you’re a current (or potential) shareholder, how can we avoid the elephant in the room? Yeah, I’m talking about the early-Aug announcement of a possible EUR 0.20 per share offer for Zamano. The one where investors were subsequently left in the dark for nearly three months, only to learn in late-Oct bid discussions had actually been terminated (no further details were provided). I’m sure plenty of shareholders have been experiencing the five stages of grief since, and who can blame ’em really…it must feel a lot like getting jilted at the altar!

So, What Now..?!

Well, less than a fortnight later, the company released news of the Chairman’s upcoming resignation, plus a 9 month trading update which (while excellent) consisted of a single sentence… This appears to draw a line under the failed bid, and signals it’s business as usual, which I really don’t find acceptable. Shareholders deserve better. Whatever the merits/likelihood of the bid, it’s a frustrating reminder of the obvious value gap between ZMNO’s share price & its intrinsic value. I’m quite sure a majority of the company’s shareholders (i.e. its bloody owners!) now feel like they’re owed at least a strategic review, laying out in detail how the board intends to close the current value gap & grow shareholder value. Let’s map out the available strategies (and forgive a more jaundiced view):

Organic Growth

My last post relied on FY-2013 figures – since then, the company’s enjoyed consistent revenue momentum of +24% in FY-2014, +19% yoy in H1-2015 & an accelerated +37% yoy in Q3-2015, while net cash increased over 150% to €5.4 million. The recent trading update now pegs the revenue run-rate at €23.3 million, a 45% increase in less than two years! Maybe ZMNO finally deserves a growth stock re-rating?! Let’s hope so… Here’s updated financials to end-June 2015, focusing (again) on cash flow:

It’s encouraging to note recent (& historical) growth clearly doesn’t require increased cash investment. But let’s not fool ourselves, management’s enjoyed some attractive tail winds here. With 80% of the business now coming from the UK, sterling strength is a significant top-line contributor. The EUR/GBP rate averaged 0.8491 in 2013, and now it’s 0.7046 – that probably accounts for 25-30% of the post FY-2013 revenue increase. And with the UK & Ireland being two of the best economies in Europe (in terms of GDP growth/recovery & declining unemployment), increased consumer spending is another substantial tailwind. Plus, there’s a renewed emphasis on B2B – and while that delivers a more stable/durable revenue stream, it also means lower margins & a lagging EBITDA (which increased 19%, to €3.1 million) over the same period.

Wexboy Portfolio – FY-2014 Performance

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Alternative Asset Opportunities, Argo Group, Bloomberg Euro 500, emerging markets, FTSE 100, FTSE AIM All-Share, ISEQ, NTR plc, portfolio allocation, portfolio performance, S&P 500, Saga Furs, value investing, VinaCapital Vietnam Opportunity Fund, Zamano

Crikey, the days are flying by already, eh?! Here we are, January’s nearly over & a FY-2014 performance review would look a bit silly in February… So let’s bang this one out: So, how did the Wexboy Portfolio perform for FY-2014? [For reference, here’s my mid-year review]. First, let’s take a peek at my usual benchmark:

Maybe this is hindsight talking, but looking at these index returns, they (nearly all) make perfect sense to me now! But duh, isn’t that true most of the time!? That is, assuming you accept momentum generally trumps value in the market…

The Irish market enjoyed the highest return, as it continues to accelerate slowly but surely out of an unprecedented recession. Of course, the recession was inevitable, but was unfortunately compounded by the foolishness of the banks & then the government itself. However, the scale & trajectory of the burgeoning recovery (now & to come) is well-deserved. Ireland may have waved goodbye to currency flexibility, but it’s one of the very few countries that still proved willing & able to take the public & private pain of radical fiscal & competitiveness adjustment, and now it’s starting to pay off in spades… [Right now, Beardy Krugman must be wishing Ireland was wiped off the map!]

The US market wasn’t far behind, though for entirely different reasons. Being the epicentre of a global financial crisis proved an excellent strategy…ideally, you end up being rewarded as the first country to subsequently escape recession! But it seems blindingly obvious the US recovery (& accompanying market rally) wouldn’t exist without the GUBU fiscal & monetary debasement we’ve witnessed. Which presents a dilemma for investors: Do you abstain, on the basis it promises an even more catastrophic disaster to come (as we’ve regularly seen since the late ’90s, as a direct consequence of the Fed’s actions & inaction)? Or do you believe the Krugmanesque fairy tale of a free lunch – government stimulus & QE really can deliver sustainable economic recovery at no perceived cost? [Hmmm, maybe a dine & dash strategy does offer a free lunch…well, ’til you’re caught!] The answer, I suppose, is the usual one:

Don’t fight the Fed!