Produce Investment (PIL.L) is a vertically integrated potato farmer. They grow and process potatoes for major supermarkets. In particular, they produce Jersey Royal Potatoes.
They trade at a forecast PE of 6. They have a free cash flow yield of about 10%. The net tangible asset value is about £35m against a market cap of £40m.
The tangible assets are all real assets – summary as at YE 2016is
- £34m Buildings / Plant / Freehold Land
- £8.8m Inventory
- £19.7m Potatoes for planting next year
- £30.4m Receivables
Liabilities are £63m(correction 29/12/2016 did read 51m ) of which £7.2m is a pension liability.
Bit concerned so much of the assets are potatoes for planting but still a strong balance sheet.
Customers are big supermarkets – so obvious pressures on prices. On the other hand Jersey royal potatoes have a protected designation of origin from the EU – nowhere else can make them and they are known and asked for by name in the UK – first new potatoes of the season (probably doesn’t make sense if you are not British).
Good factsheet here.
I think these could easily be a target – £40m isn’t much for an acquirer, diversification is sensible in agribusiness – a bigger business could easily carry a bit more leverage – evening out good years and bad years across crops. They say they may acquire other businesses – never a positive for me but at this sort of price I will tolerate it.
CEO and CFO both resigned, new guy 454,545 options which pay out if the share price is £2.20 over 65 days – a 45% increase in price. I actually don’t mind management making money if I make money too… They are sensibly paid.
As an agricultural company years with poor production tend to result in better prices – best indication to me is that 2016/7 is going to be a decent year. 2014/5 was terrible.
Best information I can find on this is here:
https://potatoes.ahdb.org.uk/knowledge-hub/newsletters/potato-weekly
As ever with companies that own land possibility for planning permission and a large uplift if they can build houses – not done any real investigation into this though…
Risks are – leaving the EU labour costs may rise. I have looked into this and tried to work out impact – I don’t think it will be much – some potato harvesting is mechanised. Further I have tried to break down total labour cost as best I can with the little information I have available, lots of this is not low skilled minimum wage stuff… Even if labour costs rise (and its a big if) I suspect prices will adjust.
They had a product recall at the end of 2015 which I suspect held the share price back a touch…
Shareholders are nicely dispersed – 23.5% management – enough held by others to challenge them…
Bought a 6% portfolio weight. Hope for either a re-rating or a take over offer… Target £3.00…
Deep Value Investments Blog 
Liabilities are 64M not 51M. In addition to the pension you cited, there is also debt of 19M.
Yup I got this wrong – typo – I read the line above on P29 of the accounts – so excluded short term liabilities.
Still NTAV of £51.2m vs a market capitalisation of £46m.
Thanks for letting me know, edited…