Quick overview: Business with good returns on capital, strong organic growth prospects, solid balance sheet, and significant inside ownership.  Trades at 8x trailing operating EPS net of cash, with top line growing in the mid-teens.  Likelihood of near-term business transforming acquisition/JV/strategic relationship, or possible sale of entire Company.

G. Willi-Food International Ltd. ("G. Willi" or the "Company") has been written up here several times before.  Operationally, since prior write-ups, the Company has continued to post good organic growth and has maintained margins, even in the face of rapidly rising commodity costs.  I believe that the likelihood of a catalyst is even higher than before, as management has recently confirmed that they are in discussions with multiple parties to expand distribution in the U.S. and/or effect a more broad reaching transformative M&A transaction.

G. Willi is an Israeli-based distributor and manufacturer of kosher foods.  Roughly three quarters of the Company's revenue is generated in Israel, with the balance generated in the U.S. and Europe.  The Company distributes and manufactures over 1000 products, in primary product categories that include chilled salads, dairy and dairy substitutes, canned vegetables, canned fish, and edible oils.  G. Willi generates approximately 75% of its revenue through its Distribution segment; however, unlike most food distributors the Company is heavily involved in the conceptualization and design of a large percentage of its distributed products.  As a result, it has developed a more proprietary product portfolio than a typical broad line food distributor, which provides better insulation from pricing pressures, and helps it maintain superior operating margins to many of its competitors.

In developed markets, food consumption (and by extension, distribution) typically grows slowly.  For most distributors, gains in excess of GDP growth need to come from market share gains.  Kosher food, however, has some unique characteristics that provide it with a more favorable growth profile.  Kosher food is subject to more stringent manufacturing inspection and oversight procedures than its non-kosher counterpart.  In addition, kosher dietary law prohibits, among other things, consumption of both shellfish and pork, and the mixing of meat and dairy products.  As a result, kosher food is becoming increasingly popular with a wide group of consumers, including those concerned with food safety, those afflicted with certain food allergies, and other religiously observant non-Jews (primarily Muslims and Buddhists).  In fact, although traditionally viewed as ethnic Jewish food, today non-Jews account for over 80% of aggregate kosher food demand.  Kosher foods' widening popularity has driven 15% annual global demand growth in the category in recent years.  Kosher food is increasingly being viewed and marketed as a more affordable substitute to organic food, one of the few hot growth areas in food retail in recent years.

G. Willi has been a beneficiary of these positive kosher food demand trends.  The Company has recently grown its top line at a mid-teens rate, and posts operating margins in the high single digits.  Returns on its invested capital are north of 20%.  Moreover, it has maintained its operating margins in the face of rapidly rising commodity prices, a testament to its pricing power.  The Company has a solid balance sheet, with year-end net cash of roughly $50mm, or nearly half of the Company's market capitalization.  For 2010, G. Willi generated $0.55/share in operating earnings.  As such, at the recent price of roughly $7.80/share, it trades at under 8x trailing operating earnings net of its cash.  The Company's founders, brothers Joseph and Zwi Williger, serve as the CEO and COO, respectively, and control 53% of the Company's equity.

Although 8x trailing EPS is an attractive valuation for a mid-teens grower in its own right, an additional potential near-term catalyst further enhances the investment thesis for G. Willi.  For some time now, the Company has been looking to more aggressively establish its presence in the world's largest kosher market, the United States.  It has been concurrently pursuing multiple options in this regard in recent months.  These options have included both the possible purchase of a U.S.-based distributor, as well as the establishment of a strategic relationship that would give it access to distribution without necessarily necessitating the purchase of assets.  Although the economics of these alternatives would differ, I believe that both would likely be significantly accretive to the Company's intrinsic value.  Either of them would allow G. Willi to leverage its development, distribution, and manufacturing expertise in kosher foods over a much larger potential addressable market.  Although the U.S. market is typically viewed as the most competitive in the world, there is currently no dominant single branded competitor in the kosher food space.  A meaningful move into the U.S. market would therefore not only benefit the Company's financial performance, but could markedly improve G. Willi's trading multiple by diversifying the current Israeli-centric revenue base and broadening the Company's appeal as an investment vehicle to U.S.-based investors.  Company management has also disclosed that it is in discussions with private equity investors.  It is unclear from management disclosures whether these "discussions" relate to a sale of the Company, or a possible funding source for the distribution move into the U.S.  However, some press reports have indicated that a sale of the entire Company is being negotiated.