Produce Investments (LON:PIL)
Share Price 175p Market Spread 170p - 180p
Market Cap £55 million Normal Market Size 500 shares
(Disclosure I am long the stock)
Introduction
A quick overall view of the via short company video and their fact sheet. Click on links below..
http://produceinvestments.co.uk/wp-content/files_m...
Valuation
Produce Investments (LON:PIL) is on a price/earnings multiple of 7. The company should earn its current share price of 175p over the next 7 years. Those same earnings will not be in a straight line of progression. Substantial variation in each year's earnings will occur depending on the weather, potato diseases, market supply and supermarkets squeezing their margins.
Certainly, one would expect one or two years of below par profit coupled with an odd exceptional year in growth, due to high potato prices that year. The earnings per share will generally thereafter track back to an average 25p - 35p per year. Peeling potatoes may be boring but are sustainable earnings over time..
Points to Consider
The management have taken the necessary tough decisions in the past. They rationalised the business when needed and closed both the Tern Hill and Kent sites. The Kent site was closed in December 2015 and is currently for sale
The Swancote Foods division experienced a contamination issue in June 2015. The concern related to the identification of traces of metal being found in its potato salad and ready meal products. The matter was dealt by management in an open transparent way with customers and investors.
The low margin potato market provides a barrier to entry to other major competitors. Margins are 7% - 8% in good years potentially. Produce Investments plc has already the scale and management experience in this niche area with long standing contracts with major purchasers. To start from scratch for a competitor would cost more than the Produce Investments present market capitalisation.
Profitability
Operating profits were 9.2 million in 2016 up from £8.2 million in 2015. Note the headline £9.2 million was before the Kent closure which incurred an exceptional charge of £3.5 million, plus £1.1 million interest payable on £23 million of borrowings, The company had…
