Just had a look at these, have a great product with Cathedral Cheese, massively dominant market position; however, looking at the balance sheet, specifically, the cash flow, defo seems to be an issue with making enough cash flow to cover the dividend.
If you go back to 2014, net debt was £142m, yet if you jump to now, it’s £265m, dividends paid out over the four year period total around £120m, £265m minus £142m is £123m, meaning they are using debt to sustain the dividend, and minus dividend payments, the company is actually not making any money, at all, it is simply breaking even. So it's not loss making, but it's not profit making.
The way I see it, unless the company can cut costs and find growth to near enough double cash flow, despite the strength of it’s products, a dividend cut down the line is inevitable.
This brings to me to the placing earlier in the year, they raised £79m at 495p, this will likely delay any danger of a cut by a few years, but unless cash flow more than doubles over the next few years, a dividend cut, and a big one at that, has to happen, which is probably why it’s been struggling share price wise the last couple of years.
The question is though, can they use the money raised to cut costs enough and boost growth enough to double the cash flow, like they claim they will, making them a good buy at this price, or will the money simply be more money down the drain, and in three or four years will they raise more money to cut net debt and repeat the process, meaning the company is on a slow and drawn out downward trend. Wondering if anyone has any thoughts on this, as I'm torn over them?
I was also seduced by the Cheese argument and the post Brexit competitive advantage.
I am also now thinking of dumping my holding for Tech Analysis reasons.
On fundamentals the Stocko quality score is too low for me, maybe it is caused by the factors you mention.
However it passes three screens that I respect, Ben Graham, T Rowe Price and Buffet.
