Description

National Beverage (FIZ) develops, manufactures, markets, and distributes a complete portfolio of beverage products throughout the U.S. If you live west of the Mississippi like I do, you will recognize the company’s flagship brand “Shasta”. FIZ also offers non-carbonated beverages such as juices and juice drinks, bottled water and specialty beverages.
The investment appeal to FIZ is that the company currently has around 70 million in cash and no debt. So at the current price of $7.81 the cash value is approaching $2 per share. FIZ paid out a one time $1 cash dividend in April of ’04 when they had less cash available than they do today.
FIZ is a good free cash flow generator. The company ended the April 30th 2004 fiscal year (after paying the $1 per share dividend) with 34.4 million in cash. One year later the cash balance had grown to 54.6 million. This is in line with my conversations with the company which indicated to me that depreciation is roughly equal to cap ex and currently the company generates $20 million in free cash per year.
While it is anyone’s guess as to what the company will do with the cash, there are four possible actions that the company could take:

1) Pay another large one time dividend
2) The Chairman who owns 77% of the stock will make an offer to buy the company
3) Buyback shares
4) Make an acquisition

I think either #1 or #2 are the most likely events to take place. Since FIZ paid a large dividend with a smaller cash balance last year, it is not a big stretch of the imagination to assume that they will do it again. This is a small cap company and Sarbanes-Oxley has been especially burdensome on companies like FIZ. If the Chairman decided to take FIZ private by acquiring the other 23% of the shares, these extra expenses would be eliminated.
FIZ owns 14 bottling facilities across the U.S. which allows them to efficiently manufacture and distribute beverages to substantially all geographic markets in the U.S. To a lesser extent, FIZ develops and produces soft drinks for retail grocery chains, warehouse clubs, mass merchandisers and wholesalers as well as soft drinks for other beverage companies. Over the last several years the company has focused on increasing the penetration of its brands in the convenience channel (convenience stores, gas stations, etc). FIZ has developed products and packaging targeted at this market since margins are higher. The overall gross sales for FIZ have been relatively stagnant over the past few years. Some of this can be blamed on extraordinary events such as reduced consumption of carbonated soft drinks due to increased pricing cause by rising costs of raw materials. In addition, changing lifestyles and tastes are affecting the soft drink market resulting in a general softness in carbonated soft drinks.
FIZ has strengthened its line of juice, juice drinks and flavored waters. Other soft drink innovations are presently in trials and will go to market soon. Hansens Natural has had huge success with its Monster energy drink and because of its recent valuation was covered as a potential short on this website a few weeks ago. With FIZ trading at an EV/EBIT of 8.6 and a Price to Sales ratio of .60, you are not paying a price that assumes any new product success in the near future. Pretax profit margins have moved up to the mid 5% range from the low of 4.7% in early 2000. While I can’t make a case for a revenue growth story that is right around the corner, I can make a case for a very limited downside on this investment.
Insiders have been acquiring a few shares with the most recent purchase being 6,000 shares by a director in early August.
The float is too small for analyst coverage but the company was featured in an article in Smartmoney magazine in February ’05 when it was selling for $9.43

Risks:

1) Spending the cash on an acquisition that proves to be a poor investment.

2) The Chairman owns 77% of the shares so the other shareholders have little say.

3) Sales remain flat and the company holds on to its cash hoard…….the stock is dead money.

Catalyst

Having 25% of your share price in cash (and building) with no debt is a natural catalyst. I beleive that the odds favor something positive happening for shareholders.