The net cash position has mushroomed from €150m at the end of 2001 to a projected €195m this year and €260m at the end of 2005. In other words 43c of the share price reflects the cash in the company at the end of last year. On current trends that will grow to 75c in two years’ time. But the Chiquita rumour continues to give market analysts and financial journalists something to write about on slow news days.
Quick recap. Fyffes is Europe’s largest fresh fruit and produce company, with commanding positions in the Irish, British, Dutch, Spanish and Danish markets and a positive performance outlook assisted greatly by the American administration’s operation of a weak dollar policy.
The excitement that has seen the share price put on a spurt in recent weeks is connected to those long-standing reports of a deal with Chiquita. There are two problems with this picture. First, Chiquita isn’t as keen on tying up with Fyffes as the market seems to believe. Second, Chiquita is too expensive to be considered a serious proposition.
Fyffes held talks last November with William van Diepen, a New York investment banker, on a joint bid for Chiquita. This came to nothing. Earlier this year sources close to Fyffes indicated a bid for Chiquita at the then market price of $9.54 was not a runner. Since then Chiquita’s shares have been on a stampede and last week were trading at more than $16.31.
If the company was too expensive when the shares were trading in single figures why would Fyffes pile in now that they are 74% more expensive? Any director of the company would have difficulty justifying a bid at this stage when they could have picked up the business for a fraction of its current value just a few months ago.
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Outlook
Even without the Chiquita rumour propping up the price there is plenty to admire about the Fyffes story. The company is in rude financial health, it is benefiting from the weaker dollar and, in an era of low interest rates, enjoys a dividend yield of more than 3.85%.
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Statistics suggest the firm is also a remarkably safe investment. Last year its risk ranking was such that 34% of Irish publicly quoted companies were considered to be more risky. Over a year later that number has increased to 59%.
Verdict
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It is easy to envisage management coming under pressure to do something with all that money. That could involve a special distribution to shareholders or a share buy-back programme designed to boost shareholder value. This has become an increasingly popular option and, in the absence of acquisition activity, could be Fyffes’s best bet in terms of keeping the share price at its current levels.
Factfile
Price: 162c
Market value: €560m
Free float: 80%
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Average daily volume: 1.126m
Key shareholders: BOIAM 11.7%, Balkan Inv. Co. 11.3%, FMR Corp. 10.2%, AIB 7.8%, Marathon Asset Mgt. 4.8%
Share performance: since Dec 31 2001: + 25.38%, since Dec 31 2000: + 23.48%
Earnings consensus 2003: 15c (source: Multex)
Pros P/E 2003: 10.86 x
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Risk grade: 155 v 194 Irish average (Source: Risk Grades)
Risk ranking: 59% of Irish quoted companies are more risky
Website: www.fyffes.com