Despite a fall in profits, a sack of cash and high dividend yield makes Fyffes' shares look attractive at current levels.
People will always eat bananas when they're available, credit crunch notwithstanding. Fyffes (LSE: FFY) has been importing them since 1888, but it hasn't stopped its share price from turning rotten along with pretty much everyone else's recently.
Yet Fyffes' final results for 2008 show an increase in turnover and only a relatively small reduction in earnings before interest and tax (EBIT).
So where did the famous old banana importer slip up exactly? And will we see any growth from here?
Price rises everywhere
The world of fruit import is a volatile one. Selling prices, exchange rates and the costs of fruit, shipping and fuel all have a big impact on profitability. And in 2008, Fyffes experienced cost increases across the board, with the prices of all these three variables going bananas in the year.
On the flipside, Fyffes benefited from the relative weakness of the US dollar for much of the year and managed to pass on some increases in selling prices. Nevertheless, the overall effect was a negative one causing EBIT for the group's banana business to decline by a massive €6.2m in the year.
Of course, these factors have since reversed to some extent, but this hasn't stopped Fyffes from experiencing a slow start to the year. However, pricing has "significantly improved" in recent weeks and the company is maintaining its target result for the year of an adjusted EBIT in the range €14m-18m.
New business
The increased turnover, including the group's share of revenue of its joint ventures, amounted to €758m, up 7% on 2007, reflecting the first-time contribution from a number of businesses acquired early in the year, including Sol Marketing Group, an importer of winter season melons into the U.S. market. Adjusted EBIT amounted to €15.3m -- this excludes Fyffes' 40% share of Blackrock International Land (LSE: BLK) whose net asset value has fallen sharply. Better to stick to what you know perhaps?
The results haven't been well received so far. It looks like investors don't believe in Fyffes' ability to deliver what the company says it can. As I write, the price is down to €0.16 valuing the group around €55m. This certainly doesn't look demanding in light of the robust performance achieved in difficult circumstances last year.
The future
Consensus broker forecasts for this year are for earnings of 3.8 cents, which would place the shares on a price-to-earnings ratio of a little over four. And the company's balance sheet looks strong given its market capitalisation, with a net tangible asset value far in excess of the overall valuation (almost three times in fact) -- including cash and cash equivalents of €67m.
The dividend yield, meanwhile, is 1.5 cents per share; a hugely healthy return of over 9%, if it's maintained.
But there are risks. There will always be fluctuations in the various variables affecting Fyffes' profitability and the group's pension scheme moved from a net surplus to a net deficit of €10m at the end of the year as stock markets crashed.
These are strange times indeed. Share price fluctuations, overall pessimism and forced liquidity are throwing up some excellent potential value investments for the long-termers amongst us. And as long as we're not going stop eating bananas, Fyffes looks like excellent value to me.
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