2023-05-31 05:47:46 ET
Summary
- G. Willi-Food International's stock is considered a buying opportunity with its share price expected to meander between $12.50 and $15 over the next year.
- The company has seen steady revenue growth and improved Q1 2023 results, but faces challenges such as a small market, limited social media presence, and a high dividend payout ratio.
- Despite these challenges, G. Willi-Food has growth opportunities, a below-average P/E ratio, and potential for M&A activity in the future.
Stock on Sale
The few Seeking Alpha analysts, including us , covering G. Willi-Food International Ltd. ( WILC ) have mostly assessed the stock as a Buy opportunity. The current price gapping to $12.94 at the close of May '23 makes the stock a better potential opportunity. The share price topped $16 in January '23 and $14.77 in April. The stock of the food wholesaler is on sale with lower prices possibly increasing demand.
We believe, the share price will probably meander around $12.50 to $15 over the next year, as it has for the past 7 months. There is not much demand for the stock except among insiders and other intimates. On average ~1250 shares are traded daily. 2 hedge funds own the stock that we can find. 3 insider buying trades were made over 6 to 12 months ago but we have no information on insider sales of shares.
Company Profile
Several factors limit up winds for the stock. G. Willi-Food sells in a small market. Israel's food industry is monopolized by a few large supermarket chains; they have the power to set prices, space allocations, and advertising spending of suppliers. G. Willi-Food penetrated the retail kosher food industry. It might want to target the growing hospitality industry, too.
The population is a mere ~9M. Inflation in food prices is only slightly easing, costs are increasing, and the 13.7% dividend yield is not well-covered by earnings and cash flow leaving us skeptical of its sustainability.
Israel Food Inflation (tradingeconomics.com/israel/food-inflation)
It's puzzling to some retail value investors that the share price of G. Willi-Food slumped 22.75% over the past 12 months and 9.2% YTD on the heels of Q1 '23 good news. Revenue has been steady and improving. The company made cash dividend payouts in FY'21 and FY'22 for the first time since 2016; the current yield ((TTM)) is at 13.76%. Early this year there was a smooth change in CEOs, chosen from the company's board of directors.
The 24 years old company imports and distributes kosher foods from 150 manufacturers and growers to Israel where the company is based. The company website is in Hebrew with a cumbersome English translation and frustrating contact page for customers and consumers. It is not a selling site despite G. Willi-Food's penchant for select, high-end, hard-to-find, foods. Moreover, the company has limited if any effective social media presence for its products and brand building.
Revenue & Financials (seekingalpha.com/symbol/WILC/income-statement)
Q1 '23 results improved as supply chains opened and transportation moderated. Foreign exchange rates and inflation may have boosted some numbers.
- Record high sales were +28.2% to $41.9M from $32.7M in Q1 '22.
- Gross profit increased 17.0% Y/Y $11.1M.
- Operating income increased 37.7% Y/Y to $3.6M.
- Cash and equivalents were $65.5M, as of March 31, 2023.
- The EPS for Q1 '23 was $0.21.
Forces At Work
The Chairman/CEO explained Q1 '23 results to SA readers and G. Willi-Food shareholders. He attributes a lower gross profit margin to
the strengthening of the USD and Euro currencies in which the Company buys its products and the increase in of product prices."
Management focused on operational profit by increasing sales, expanding product offerings to consumers, increasing inventory levels, advertising, and marketing. Management intends to continue and expand these strategies throughout 2023 by increasing consumer demand for its products with more advertising and promotional campaigns through its 1,500 outlets.
The largest sales volume for 2022 were dairy and dairy substitute products (37.8% of sales), canned vegetables (14.1% of sales), cereals, rice and pastas products (12.3% of sales) and fish products (12.5% of sales). 54% of its products are sold to large supermarket chains.
Fearfulness
Investors may be squeamish or fearful because of the relatively low return on equity (7.4%) compared to the 19% ROE average among food wholesalers. G. Willi-Foods net income averages +8% over 5 years; the food wholesaler industry participants " usually make between 15% and 30% in profit."
Another reason G. Willi-Food International is not attracting a wider pool of investors is its whopping 3-year median payout ratio of 167%. The dividend puts G. Willi-Food in the 25% of dividend payers in the entire U.S. market.
Dividend Yield (simplywall.st/stocks/us/consumer-retailing/nasdaq-wilc/g-willi-food-international/dividend)
Takeaway
Some positives in addition to the stellar quarterly revenue are worth noting. Since 2016, the market capitalization has grown from $0.06B to $0.34B in 2021. It is now down to $0.18B with growth opportunities.
The PE of 16.65% ((TTM)) is below the industry average of 19.1x and earnings are growing. The 5-year Beta is 0.76. Short interest currently is a negligible 0.03%. Israel is a tiny market for food projected to be about $540M in 2023 but the country's population is growing. Food sales is expected to grow in Israel almost 23% by 2027 and in product categories targeted by G. Willi-Food. The company was granted a building permit to construct an automated and computerized refrigerated and frozen distribution center for an estimated cost of almost $25M.
Our primary concern is the company seems to be, in our opinion, run like a cottage industry firm. One analyst hints "the company's shareholders are getting paid from more than just the company's earnings" because of the high payout. But all shareholders, insiders, and retail value investors, can benefit if management can sustain the revenue growth and improve earnings.
Keep in mind that Israel has experienced tremendous M&A growth over the past 5 years that is expected to increase in 2023. G. Willi-Food might grow enough to attract the attention of more than insider investors but acquirers as well.
For further details see:
G. Willi-Food International Is On Sale