G. Willi-Food Looks Tasty But Not Lip-Smacking
Summary
- G. Willi-Food International has excellent financial strength and sells into a prospering market.
- Lower freight shipping costs will fall to the bottom line in future quarters while rising prices in the food business seem easily passed along with little damage to revenue.
- G. Willi-Food deserves our bullish rating and that of the few other analysts who cover the thinly covered and traded stock.
Imgorthand
The name, G. Willi-Food International Ltd. (NASDAQ:WILC), spurs an image of a big-league player in the $800T food industry. In fact, revenue is a mere $150M per year. The market cap is ~$192M. Downsides aside, we remain bullish like in our previous article for good reasons.
Cloudy Images
Many things about G. Willi-Food generate cloudy impressions. Overall, we are bullish when shares sell for about $14. The company fills an interesting niche in Israel's relatively healthy and well-supplied industry.
The share price meandered in the $16.47 to $20 range from mid-2020 through the first five months of 2022. We believe it is possible the average price target over the next 6 months will reach $18; it might hit $20 per share if revenue, profit, and cash from operations forecasts are achieved. In Q3, total assets were $$167.44M and liabilities totaled $10.3M.
Company annual returns and shareholder equity have had the worst year in a long time. But financial measures grew strong from operational improvements in Q2 '22 and Q3 '22 compared to 2021. Israeli mega-food stagnated too.
Annual Total Returns (ycharts.com/companies/WILC)
In the interest of full transparency, we must caution investors that the Israeli food market is ugly. Investigators characterize the industry as monopolistic, corrupt, and rife with political influence. Food taxes and high import duties are blamed for contributing to the high cost of living. Bread prices are up 20%. The state Finance minister has been unsuccessfully battling for two years to cancel customs duties on imported fish and dairy, both of which G. Willi-Food imports.
A Globes story wants to know. Its headline on April 26, 2022, screamed, “Israel Competition Authority raids Willi-Food offices.” Computers and documents were seized. We cannot locate any further comment or information and the ICA did not respond to our request.
G. Willi-Food’s procurement costs can be expected to rise. Food prices around the world are subject to inflation. Economist Liz Ann Sonders notes consumer food prices jumped 3.7% in November. That is the fastest increase since May ’20 and since 1974. The cost of food in Israel rose 4.4% in October.
Food prices (Twitter)
G. Willi-Food International sells, distributes, and markets upscale foods with little name-brand recognition. Their products are made in Israel but mostly imported to Israel. The products include
canned fruits and vegetables, pickles, selected bakery products, excellent quality of oils, pasta, rice, noodles, breakfast cereals, dried fruits, coffee whiteners, snacks, butter and butter spreads, quality ice creams and cheeses from all over the world.
Positive Drivers
Despite the high cost of living, Israel’s residents appear able to afford G. Willi-Food's selection because the economy is robust. Israel’s GDP is expected to end FY ‘22 up around 6%. The Israeli food industry is expanding. We forecast it to increase by 27% (CAGR) annually. Israel’s population was getting bigger through a combination of immigration and a healthy fertility rate of 3.04 births per woman in 2020. The rate is in decline (2.954 births per woman in 2022) but outpaces similar countries worldwide. According to the Financial Times, lower birth rates result when national incomes go up.
The population is getting wealthier making G. Willi-Food imports affordable to many. Israel is home to 71 billionaires or 6.7 for every 1M people. It is 23rd worldwide in the total number of wealthy people. Israel is home to 150K millionaires. The numbers are rising, as are its unicorns, start-ups, and IPOs. All this is a hardy portent for G. Willi-Food.
Revenue of Israel Food Categories (Statista)
G. Willi-Food Numbers
The company works with over 150 manufacturers and handles over 600 products. G. Willi-Food does not sell directly to the public. Rising food prices are blamed on inflation and supply shortages, but falling freight shipping costs will benefit G. Willi-Food’s bottom line in the next two quarters. The company's next earnings report date is tentatively scheduled for February 5, 2023.
Dropping Freight Container Shipping Costs (Statista)
Total G. Willi-Food revenue is higher each of the past five years: $114.57M in FY ’19, $141.28M in FY ’20, and $146.35M in FY’21. The Q2 revenue reported in May ’22 was flat Y/Y. In Q3, reported last month, revenue jumped 16% Y/Y or $34.9M from $29.9M Y/Y. Quarterly gross profit increased 15.6% Y/Y to $9.6M. Operating income was at a recent high of $2.7M and net profit popped 46.1% Y/Y to $2.1M from $1.5M the year before. The company was holding $82.6M in cash on September 30, 2022. SG&A was higher but attributable to about 9% more spending on advertising and promotion; 8.2% more went to higher general and administrative costs.
The company decreased the dividend by 2.3% from $0.44/share to $0.43/share last August. Last month, G. Willi-Food declared a $0.32/ share dividend following an 8% increase in Y/Y revenue growth. The dividend yield is 8.2% (TTM) at the current share price. The dividend does not have a long track record of growth. The high yield ought to be attracting many more investors. Only 1K follow the stock on S. A.
Dividend (Seeking Alpha)
The company’s debt is $1.09M. Cash and equivalents are $82M. Cash-to-debt ratio, equity-to-asset ratio, and debt-to-equity ratio are each better than 90% of other food companies. The same goes for gross margin, operating margin, and net margin.
Other Downsides
WILC shares can be erratic. The share price until 2019 was in the single digits. It popped 144.2% over the past five years. The share price is -24% over the past year and -25.26% year to date. The all-time high share price topped $24 in February ’21. June through December of 2022 the price has been choppy.
We believe the cash trove can be used to buy back shares and improve shareholder equity. There is no talk about that happening. Management ought to invest in a more secure and user-friendly website. Their site appears to be hackable; it relies on a translator for English rather than investing in an English site. The click tabs do not always work making maneuverability difficult. It is especially trying when opening the (investors) Business Information tab.
There are a host of other down winds in no particular order. The company does not discuss in reports to shareholders that we can find, the impact of fluctuating foreign currency exchange rates. We expect falling shipping rates to add to profits in the next quarter but need forecasts from management.
A plethora of exposes dominate Israel’s food industry. A journalist reported for I24 News on Israel: The monopoly nation (March 2022).
five groups hold almost 50 percent of the agri-food market—driving up the cost of living…thanks to their merger-acquisition strategy.
Last Bite
Foodstuff in Israel cost 20-25% more than in Europe. We expect the company financials will benefit from falling freight container rates over the next few quarters. Inflation at home and abroad might off-set some savings but we expect revenue to grow regardless.
Information on G. Willi-Food is as obscure as the company is to the investment community. The average trading volume is a mere +4,000 shares. Over seven years, seven Seeking Alpha articles covered G. Willi-Food. Only two or three substantive articles appear each year in the financial news. The authors are generally bullish on the stock.
This a potentially excellent investment in a company servicing a prosperous population. G. Willi-Food has growth potential, gets a good value rank at this time, and is financially healthy but lacks momentum. If we have our eye on the company, perhaps bigger food purveyors do too.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.