Description
G. Willi Food International has appreciated over 60% since I first wrote up the investment thesis in December of last year. Yet an investment in G. Willi today is just as compelling as it was then given recent operating results from the company and new information about an upcoming dividend that was only released under Tel Aviv Stock Exchange filings. This investment would have Ben Graham smiling ear to ear and defines why smaller, at least in investing, is usually better.
The Numbers Today:
G. Willi has a market cap of $22mm, current assets of $25mm, and total liabilities of $5mm. $10mm of current assets is in cash giving the company an enterprise value of $12mm. The company just released second quarter numbers on August 4th that showed sales increasing 34% to $10mm and net income increasing 87% to roughly $1mm. This performance was the result of increased advertising in the first quarter and the addition of several new products into the market. For the first six months of the year, total sales are $20mm and net income is $1.3mm (which includes one time depressed Q1 net income). The updated numbers from my original write up are presented below:
Income Statement ($mm):
1999 2000 2001 2002 2003 YTD2Q
Sales 31.65 30.84 30.53 29.58 31.3 20.1
Operating Income 2.80 2.50 2.52 2.18 2.66 1.88
Net Income 1.89 1.89 1.98 1.62 2.00 1.27
Shareholders Equity 12.49 14.39 16.37 18.00 19.90 20.77
Investors buying G.Willi today are getting a range of 21% to 33% yield on enterprise value based on my estimate of total 2004 earnings. There is virtually NO DOWNSIDE due to the pristine balance sheet and upcoming dividend.
Dividend Information:
Due to my first G. Willi write up, I have been to develop a relationship and dialogue with a fellow shareholder of the company who is based in Israel and who has worked tirelessly as an activist with this situation in an effort to get management to implement a dividend or buyback stock. The result of all this work is apparently a new dividend policy by Williifood Investment that will “aim” to distribute 33% of all future net income (starting in 2004) as a dividend. As detailed in my first write up, Willifood Investment is run by Zvi Willinger and Joseph Williger - brothers who are respectively, COO and CEO of the Company. They control G. Willi through their investment firm Willifood Investments (78% owners of WILCF) which is listed on the Tel Aviv Stock Exchange. Essentially all of Willifood Investment’s income derives from its holdings in G. Willi food International. Therefore, it seems logical to assume from this notice that Willifood International plans to use its controlling shares in WILCF to implement a significant dividend at the end of the year. This only has been made public through a recent filing on the Tel Aviv Stock Exchange that can be viewed at the link below (only in Hebrew). Once this news is released in the U.S., I suspect the stock will rally as this clears up the major concern/criticism with this investment. I have sent an email to the CEO just to confirm this and will update VIC members once I hear back from him (I’m posting the idea now because I think my assumption is right and I want to post it before any news in the U.S. is released). It should also be noted that the brothers have been doing some insider buying of late (buying Willifood via TASE).
http://maya.tase.co.il/bursa/report.asp?report_cd=107934&CompCd=371
The TASE filing sets out a number of conditions to this dividend:
• That the dividend will be approved by all applicable laws.
• That the board will take into account the Company's financial situations, obligations and business.
• That the distribution will not damage the Company's bondholders and banks.
• That the distribution of the dividend will not cause the shareholders equity will not drop below 55% of its total assets after the dividend.
Based on my net income range for 2004, the dividend yield estimate is between 4% and 6%.
You have a company with growing sales and net income, a yet to be announced material dividend, and a yield on enterprise value of 25%. What more do you want?
Catalyst
Dividend
Operating performance