I have sold out of FFyfes – this is a position I have held in one form or another since 2011 but the bulk of the current shares were bought in October 2014 at about 95 EUR – I am selling around 145/149 and have had a bit of dividend so am up well over 50%.
My records indicate that some of this position has been held since 2011 for a nice 343% gain.
My original write up is here. To summarise I liked FFyfes as it had a strong asset backing, good cash flows, potential hidden value and I thought it might be a takeover target.
The acquisition of a Canadian Mushroom business for €98m undermines this. Its funded by debt – something I dont like, particularly in a commodity based business such as Fruit & Veg, its very possible we get falls in prices / profits and debt can rapidly become a problem.
I also fail to see synergy here – just blind expansion – there is no overlap in terms of category or geography… Why does this make sense ?
As this makes FFY more expensive it makes a takeover less likely – a negative for me, but I suspect a positive for FFY’s management team – and the real reason why the deal was done…. This also and exposes FFY to the risk of underperformance following the acquisition. I have often noticed writedowns following acquisitions within a few years usually making a good entry following share price falls.
Lots of readers will be saying they like efficient balance sheets. I am not in agreement. I like fat balance sheets – ready to cushion hard times. I acknowledge a healthy balance sheet makes it easier for management to waste and steal but still prefer companies with little or no debt. I acknowledge it is tax inefficient (due to the tax-shielding interest deductibility of debt) and lowers returns in the short run. Despite this I prefer it as it allows for opportunism on economic / competitors weakness and allows companies to survive through dips in prices – particularly in commodity driven businesses..
Still a good result – I don’t rule out getting back in again should the price fall to a more attractive level.