Wednesday, August 29, 2012

Free G. Willi

Value investors may want to have a look at G. Willi-Food (WILC) , a Nasdaq-listed Israeli distributor of specialty foods. The company is profitable, and yet it trades for about its cash balance, despite the absence of debt!

WILC has actually been discussed on this site before, but since then the stock is down another 10% while the company has navigated through another couple of profitable quarters. The issues facing the company remain the same, however: revenue has been hit by pricing pressures due to national protests, and costs are on the rise thanks to food inflation.

Unless you are in the Thomas Malthus Jeremy Grantham camp, you may see these as temporary margin pressures. In any case, the massive cash balance provides significant downside protection.

Perhaps the biggest risk facing long-term investors, however, is WILC's poor capital allocation decisions. The market is offering its owner/operators an incredible opportunity to buy back shares on the cheap, but the company is not taking advantage of the situation.

The only questioner on the company's latest conference call implored management to buy back shares, but received the standard "we always consider all options" response. Management appears focused on making an acquisition, even though the caller made the valid point that WILC cannot possibly find a more compelling value than its own shares at 2x earnings (ex-cash).

Despite the company's operators' stubborn desires for growth despite the incredible wealth-creating opportunity staring them in the face, they have a proven ability to create value. Book value per share has steadily increased from $1.97 to $6.44 over the last ten years, which is a feat to be proud of. Hopefully these gains are not squandered on a poorly-priced acquisition.

Disclosure: Author has a long position in shares of WILC

1 comment:

Michael said...

hey barel,

i'm israeli and i'm also quite interested in this company.

Willi.G is 57% owned by Willi Food Investments, an israeli company, which is 60% owned by Williger Zvi and Williger Joseph (brothers...).

It's worth mentioning that Williger Zvi, who was the CEO also until quite recently, bought stocks of Willi Food Investments in the sum of 896,763 NIS, or about 224,190 dollars, in the last year.

By the way, the discount on Willi Food Investments is much bigger than the one on Willi.G:

The mkt cap is 123,067 thousand NIS while the net current tangible asset value is 299,746 thousand NIS - ratio of 41%.

Willi.G's mkt cap is 54m$ while it's NCAV is 70m$- ratio of 77%.