Israeli Smallcap Willi-Food Shows Impressive Growth

| About: G. Willi-Food (WILC)

When we think of investing in Israeli companies trading in the United States, the first thing that usually springs to mind is a cutting-edge high tech firm, rather than an upstart in the worldwide kosher food business. However, G. Willi Food-International Ltd. (NASDAQ:WILC), one of Israel’s largest food importers, is seeking to expand into the rapidly growing U.S. kosher food business, which is now estimated at over $5b.

Willi Food had reached a deal to buy into a New Jersey food distributor, but that deal fell apart. Currently the company is looking for the right partner to forge into the huge U.S. market, demonstrating management’s drive to find the best possible partner.

On the Israeli domestic front, the company turned in a record 1st half of 2006 (23% revenue growth over same period 2005). A large upside earnings surprise may also occur for the third quarter of this year as a result of the recent war with Hizbullah. Although tens of thousands of Israelis usually travel abroad during July and August, many such trips were cancelled this year. As thousands of consumers stayed in the country for six weeks more than usual, this may well help the third quarter numbers. Zvi Williger, President and COO of Willi-Food, alluded to this possibility when he said, “We have to date seen revenue growth in the third quarter, which is in part due to increased consumption relating to the recent conflict in Israel.”

In comparison to other food wholesalers’ valuations, WILC is very cheap. With a PE of under 8, which is about half of the industry norm, gross margins of over 24% - a full 5% more than industry norms - and a PEG of under 0.6, the stock has plenty of room to run. Interestingly, there is a float of only 2.1 million shares, and insiders hold over 75% of the shares.

When I met with Zvi, I asked him why it seems that every time the stock drops he keeps buying back shares in the open market (mostly in Tel Aviv, where stock is dually listed). He responded by saying that he knows the company’s real value and how cheap it is, and he has plenty of patience until the market gets it right. Various sources have stated that some analysts would like to initiate coverage on the stock, but are currently unable to do so because of the low trading volume. In my opinion, it would seem that if the company can sign a deal to get into the U.S. market over the next six months, there could be some kind of stock offering to free up the float to enable institutions to buy in.

After a 30% pullback over the past three months, caused by the war and the general underperformance of small-cap stocks, the stock seems to have found support in the $6.20 range. Once the company gets on to the institutional radar screen, we could see the stock start trading according to valuations more in line with the industry.


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