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G. Willi-Food International Ltd. (NASDAQ:WILC) is an Israeli-based company specializing in kosher food products. Willi-Food is engaged directly and through its subsidiaries in the design, import, manufacture, marketing and distribution of more than 1,000 food products worldwide, but mainly in Israel.

As one of Israel 's leading food importers, Willi-Food's products can be found in every food store in the country including large retail and private supermarket chains, wholesalers and institutional consumers.

Parent company Willi-Food Investments LTD. (WLFD.TA) holds 53% of WILC. Over 37% of WLFD.TA is held by Mr. Zwi Williger, who is its single largest owner and director as well as chairman/president/COO of WILC.

WILC is a micro-cap company trading at a market cap of approximately $64 million. It pays no dividends [WLFD.TA does] and trades at low volumes. This is not the stock to appear on your radar normally, but missing it may be a mistake. And here's why:

As of September 30, 2011, WILC had the following figures:

  • Current assets: $88 million
  • Cash and other short-term financial assets: $52.3 million
  • Net fixed assets: $13 million
  • Short-term debt: $1.7 million
  • Total liabilities: $16.7 million
  • Long-term debt: $0

That's a total net of $84 million. Let's be conservative and assume just $75 million or even $70 million due to a decrease in value of its financial holdings. Still – the market cap is only about $64 million.

Besides this low valuation for the balance sheet, WILC is a profitable company constantly providing positive cash flow. In 2008, 2009, and 2010, its free cash flow (=cash flow from operations less capex) was around $4 million every year. For the first 3 months of 2011 it was even higher. Even if you use low multipliers on this amount you still get a valuation for the company that is much higher than the current stock price.

Mr. Williger, the main stock holder, is constantly buying the parent company's stock, thus showing his confidence in the business.

In the comments to the third-quarter's results, management indicated the profit margins decreased due to rising costs and decreasing prices due to national economical protests that took place in Israel. For these reasons the company also expects continued relative weakness in the 4th quarter of 2011, and 1st of 2012. I do not believe these price reductions will remain over the long term as the protest are practically almost gone and WILC is a relatively big player operating in a small market and can be a price leader.

WILC is a profitable company that carries no debt – that's SO refreshingly uncommon!

The main risks for the stock's price can be found in:

Continued national protests that will keep the pressure on WILC's product prices and stock.

Continued rise in WILC's costs. While this trend can continue, over the long run it should be able to raise product prices and compensate for that.

Exchange rate differences between USD and NIS may cause the stock to decrease.

The stock's low trading volumes may prevent you from initiating material long positions or closing them at any given moment.

Although the market caps are far from one another, here's a short comparison of WILC's basic figures with other companies in the industry (data from Yahoo! Finance as of January 7):

G. Willi-Food International Ltd. (WILC)

Kraft Foods Inc. (KFT)

Nestle (OTCPK:NSRGY)

Unilever (NYSE:UL)

ConAgra Foods Inc. (NYSE:CAG)

Tyson Foods Inc. (NYSE:TSN)

Market Cap

$64.9 M

$66.3 B

$182.64 B

$91.66 B

$10.9 B

$7.51 B

Total Debt

$1.7 M

$29.56 B

$22.54 B

$14.08 B

$3.03 B

$2.18 B

P/B

0.78

1.82

3.37

4.79

2.33

1.33

P/E

10.96

20.49

5.28

16.64

15.4

10.31

Current Ratio

5.39

0.85

1.00

0.89

1.71

2.01

Profit Margin

6.41%

6.06%

32.68%

9.84%

5.67%

2.32%

% held by insiders

58.04%

0.06%

N/A

N/A

0.33%

1.81%

Operating Margin

8.55%

13.24%

13.3%

13.2%

10.07%

3.98%

Dividend Yield

N/A

3.1%

3.3%

3.6%

3.6%

0.8%

Growth Estimates- Next 5 Years (Per Annum)

15%

10%

3.7%

8.2%

7.3%

7.3%

Conclusion

WILC is operating in an industry where the products are a necessity. But like in other industries you have to find the right player for your preferences. You have to consider valuation, debt levels, rise in income and cash flows over time and dividends.

Taking it all into account, I find WILC seriously undervalued with a wide margin of safety. I think the stock should rise nicely in the future and compensate for the risks mentioned.

However, due to its low trading volumes I would not recommend making it your core holding as you may have a problem closing your position when you need the money. Additionally, and mainly if you are an income investor, keep in mind that WILC pays no dividends, only its parent company does.

Source: Great Value Play In G. Willi Food-International Ltd.