Explaining G. Willi-Food Share Decline and Why It's So Cheap

| About: G. Willi-Food (WILC)
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G. Willi-Food International (NASDAQ:WILC) is Israel's largest food importer and also distributes food in the United States (revenues 80% Israel, 20% U.S.). It is a highly established business located in Israel whose products are found in every store in the country. Currently, and for the foreseeable future, WILC is growing organically at 15% as a result of entry into dairy and refrigerated salad products in Israel and new demand in the U.S. for their products.

After reaching $7.80 on May 20th, WILC stock has been declining, reaching 7.15. The reason for the steep decrease was after a publication of an SEC filing showing that Zvi Williger, the company CEO and biggest share-owner personally sold 185,000 shares at an average price of 7.73 during the month of April.

However, looking at the Israeli SEC filing of the mother company Willi Food Investments (WLFD owns 53% of WILC and additional cash) from April 10th , it shows that Zvi Williger bought 250,000 shares at a price of 22 ILS ($6.40, or 15% above the current price of the Israeli stock). The CEO was not selling his shares but just converting WILC US shares to WLFD Israel shares. Unfortunately, this information didn’t appear on the company press releases and on the news, however, the company approves the filing to be correct.

With a Mcap of $100mm, $50mm in cash, $30mm in property and an 0.80c of EPS in 2011 (company guidance), and a great local brand, we believe that Willi Food is one of the cheapest and safest microcaps in the world.

Below is the Israeli filing (in Hebrew) of the share purchase and a translation into English:

Date of Change: 6/4/11
Currency : 2,200 Agorot = $6.40
Holdings in last report: 4,173,101
Change in stock: +250,000
Current holdings: 4,423,101
Voting power after change: 37.51%
Fully diluted voting power after change: 36.63%

תאריך השינוי: 06/04/2011
שער העסקה: 2,200 מטבע אג'
יתרה (בכמות ניירות ערך) בדיווח האחרון: 4,173,101
שינוי בכמות ניירות הערך: + 250,000
יתרה נוכחית(בכמות ניירות ערך): 4,423,101
שיעור החזקה לאחר השינוי: בהון: % 37.09 בכח ההצבעה: % 37.51
שיעור החזקה לאחר השינוי בדילול מלא: : % 36.3 בכח ההצבעה:

Why WILC is so cheap:

1. WILC is having a recovery from a bad secondary deal done in 1Q: WILC had been thinking about acquiring a small distributor in the U.S. to facilitate the large growth it foresees and a small investment bank convinced them it was in their best interest to raise cash ahead of this. They did a terrible deal allowing the bank to price 3.2mm shares at $6.05 (having closed the previous day at $6.98), putting the stock into flippers' hands who did no work on the business.

Whatever small amounts they had left has held the stock flat over the last few months (which may sound like a good outcome given the market performance and volume, but keep in mind that this was over a period where they announced a blow out quarter).

2. The company is small and illiquid which makes the recovery slow.

Disclosure: I am long WILC.