Produce Investments (LON:PIL)
Share Price 179p (Last Dealing Price)
Market Cap €54.5m Enterprise Value 77.2 million
Bid/Offer 172p - 180p Normal Market Size 500 shares
General Comment
The company is the largest UK potato supplier to UK supermarkets. UK consumers should continue to enjoy potatoes however the economy is doing. The company is a simple business to understand because it mainly supplies large quantities of well -known potato brands to supermarkets and makes increasing profit margin on sales.
Unfortunately, for Produce Investments, it is working with weather patterns outside its control That fact alone can shatter any profit projections. One year it will be the excess supply of potatoes which offers low selling prices and then the following year it is the poor crop yield causing potatoes selling prices to rise. An investor can't seem to win despite their collaborative pricing strategy with large key customers.
This year Produce Investments appears to have had to pay extra (higher prices) for supplying potatoes under its supply contracts to key customers. Produce Investment does intend to get most of this extra expense back in its bank balance in the 2d half.
I bought Produce Investments for its boring qualities due to its low p/e, the uneven earnings over a 6 or 7 year period, which if taken collectively could earn the share price back in earnings per share. The company may still yet do that.
Interim Results
A quick glance at the RNS interim results did not make pleasant reading, as profits in the first half disappeared due to raw material cost increases of £3 million+ on top of 5% drop in sales volume. Added to shareholder woes were the substantial once-off write-offs of circa £1.5m with another £0.5 m to be taken in the 2nd half at least.
The company still reckons that its previous market expectations are still obtainable subject to a few caveats. Nevertheless, profit before tax will fail to meet targets but this will substantially be due to write-downs over the full year.
Market Reaction
Market makers marked the shares down sharply on the interim results. Surprisingly, apart from a few early sellers, the share price strengthened during the day and again the next…
