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Should You Grab Fyffes PLC ORD’s Bananas?

I keep an eye on which shares are hitting new highs, and in the past few weeks I’ve seen Fyffes (LSE: FFY) consistently reaching new levels. As I write, its shares are up 46% over the past 12 months to 107p, and they’ve more than trebled since early 2012.

Fyffes is best known for its bananas, though the Dublin-headquartered firm imports a number of different tropical fruits, including pineapples and melons. A growing Western appetite for such exotics has brought in handsome profits for Fyffes shareholders over the past five years, but is there more to come or are you treading on slippery skins if you buy now?

Growing profits

Between 2010 and 2014, pre-tax profit at Fyffes more than quadrupled to €39m, although earnings per share gained a more modest (but still respectable) 37% over the same period.

Looking at dividend yields, you could be forgiven for not being impressed, as they’ve dropped from a peak of 4.4% in 2011 to just 2.2% in 2014, and forecasts suggest only 1.6% this year. But that’s all down to the soaring share price, and hides a dividend that has actually been rising a long way ahead of inflation — the full-year payout for 2014 was lifted by 10% on of the previous year, and the annual payment is always very well covered by earnings.

Fyffes released interim figures in August and they looked impressive indeed, with chairman David McCann speaking of “a continuation of the strong growth in earnings achieved in recent years, with a 12.2% increase in Adjusted EPS in the first half…“, and the interim dividend was lifted 12.2%.

Upbeat guidance

The company, unusually for an AIM-listed one, also gave us some full-year guidance, suggesting adjusted EBITDA of between €55m and €61m, with full-year adjusted EPS expected to come in at 12.2 cents to 13.9 cents per share — though admittedly these adjusted figures are hard to compare with reported reality.

Is Fyffes one to buy now? Well, there are only three analysts’ recommendations out there right now, including the company’s own broker, all on Strong Buy ratings. And it really depends on your take on the continuation of the growth story.

Further growth to come?

Forecasts suggest a 16% boost to EPS this year followed by a smaller 2% in 2016, but it’s the years beyond that that really count. If Fyffes genuinely can keep the past five years’ growth going, then a forward P/E multiple of around 11.5 for this year and dropping a little for 2016 could still indicate decent value, even if that predicted 1.6% dividend yield might not look too impressive.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.