ALF - Allied Farmers Limited

[BFG]

Looks like good news to me for ALF:

http://www.stuff.co.nz/business/farm...ish-about-beef

I see that Speirs is still selling down. Not too surprised about this considering how long they have held interests in ALF. I see there is a big buyer gladly taking these shares off their hands at these prices though...

Had a look at mylivestock.com and listings seemed low (for a first glance). Am i being too pessimistic on this? Easy enough to use with a TM-type model.

Question is, how much has the dairy price drop affected throughput numbers? Has the (yet to be announced) drought been good for selling stock? 17% growth is not too ambitious a number announced in the last presentation, but is it achievable with these things in mind?

And finally, a capital raise in early 2015? What would they end up buying here? Profitability is great after so many years of huge losses, but is that going to be quickly extinguished by chasing "growth" and "diversification" (we all know how that went down last time!)

Any replies/ideas kindly noted

[BFG]

Right, well I did my homework over the weekend and bought some ALF today. I feel the company is well undervalued today, assuming that growth can be given as per last presentation and profits boosted. Let's take a look:

I have assumed that current EPS of 1.06cps will grow a modest 0.5 cps to 1.5cps for next year (50% growth) for a forward looking P/E of 4.6 @ 7 cents (current P/E @ 7 cents is 6.6).

YPEG score is 0.47, or indicating the stock is very cheap.EV is $6.8M, or quite cheap.

All indicators suggest that the stock is very cheap relative to its current earnings and the assumed growth rates.

Assuming then an even more conservative view of 25% EPS growth for next year, and 5% on average for the next five years (as the market is saying right now based on current P/E).I still get a target price of 16%, while YPEG is 1.06, which suggests fair value/no change to EV.

Things I like: As I said earlier, the market is pricing this in as a still very risky stock, but I do not think this is the case as all debt has been paid down and the company is now profitable, with more to come. Moreover, they are looking to growth again. I also like the fact that this was quoted from an earlier article:

"Director Andrew McDouall said Bluett had made a huge contribution to Allied Farmers. 'He has to be the worst-paid director in the country for the hours that he puts in.'" (An NZX-listed Director who cares about his company? Say it ain't so!)

Challenges: Lower forecast dairy payout for 2014-15, grazing arrangements for clients, and the bobby calf industry, even though the calf tally is growing consistently and they have cited a 17% growth in numbers coming up.

Disc- Now holding and will look to add to my holding astime goes on. I look forward to the HY report end of February

[Minerbarejet]

If its any help South Taranaki has had at least an inch of rain in the last couple of days, greening up real nice. Might save the production a bit.

[BFG]

If its any help South Taranaki has had at least an inch of rain in the last couple of days, greening up real nice. Might save the production a bit.

We've had quite a bit in the Manawatu as well. Never seen another area of the country (especially here!) look like Hawke's Bay mid-summer time. Absolutely bone dry, but still raining today and no signs of letting up

[Vaygor1]

Looks like good news to me for ALF:

http://www.stuff.co.nz/business/farm...ish-about-beef

I see that Speirs is still selling down. Not too surprised about this considering how long they have held interests in ALF. I see there is a big buyer gladly taking these shares off their hands at these prices though...

Had a look at mylivestock.com and listings seemed low (for a first glance). Am i being too pessimistic on this? Easy enough to use with a TM-type model.

Question is, how much has the dairy price drop affected throughput numbers? Has the (yet to be announced) drought been good for selling stock? 17% growth is not too ambitious a number announced in the last presentation, but is it achievable with these things in mind?

And finally, a capital raise in early 2015? What would they end up buying here? Profitability is great after so many years of huge losses, but is that going to be quickly extinguished by chasing "growth" and "diversification" (we all know how that went down last time!)

Any replies/ideas kindly noted

There's this article too from 3 weeks ago.
http://www.stuff.co.nz/business/farm...ord-stock-sale

ALF own 57% of NZFL via ALF's wholly owned subsidiary AFRL. To the best of my knowledge, NZFL is the entity providing ALF's main source of income.

[BFG]

There's this article too from 3 weeks ago.
http://www.stuff.co.nz/business/farm...ord-stock-sale

ALF own 57% of NZFL via ALF's wholly owned subsidiary AFRL. To the best of my knowledge, NZFL is the entity providing ALF's main source of income.

Thanks for the article. Looks pretty steady out there, good for AFL

[BFG]

You know, for a company that has completely turned its books around, is profitable (and looking to grow more profitable), may acquire/merge with another entity very soon and is undervalued, I'm surprised not one insto has initiated coverage or even a position in this.

I expect Speirs to stop selling at this price until we get an acquisition announcement or the HY at end of February. As they are distressed seller, as well as selling below what it costs to break even for themselves, I think ALF is a Warehouse bargain bin item when it should be a bit more upmarket

[robbo24]

You know, for a company that has completely turned its books around, is profitable (and looking to grow more profitable), may acquire/merge with another entity very soon and is undervalued, I'm surprised not one insto has initiated coverage or even a position in this.

I expect Speirs to stop selling at this price until we get an acquisition announcement or the HY at end of February. As they are distressed seller, as well as selling below what it costs to break even for themselves, I think ALF is a Warehouse bargain bin item when it should be a bit more upmarket

I concur

[noodles]

Right, well I did my homework over the weekend and bought some ALF today. I feel the company is well undervalued today, assuming that growth can be given as per last presentation and profits boosted. Let's take a look:

I have assumed that current EPS of 1.06cps will grow a modest 0.5 cps to 1.5cps for next year (50% growth) for a forward looking P/E of 4.6 @ 7 cents (current P/E @ 7 cents is 6.6).

YPEG score is 0.47, or indicating the stock is very cheap.EV is $6.8M, or quite cheap.

All indicators suggest that the stock is very cheap relative to its current earnings and the assumed growth rates.

Assuming then an even more conservative view of 25% EPS growth for next year, and 5% on average for the next five years (as the market is saying right now based on current P/E).I still get a target price of 16%, while YPEG is 1.06, which suggests fair value/no change to EV.

Things I like: As I said earlier, the market is pricing this in as a still very risky stock, but I do not think this is the case as all debt has been paid down and the company is now profitable, with more to come. Moreover, they are looking to growth again. I also like the fact that this was quoted from an earlier article:

"Director Andrew McDouall said Bluett had made a huge contribution to Allied Farmers. 'He has to be the worst-paid director in the country for the hours that he puts in.'" (An NZX-listed Director who cares about his company? Say it ain't so!)

Challenges: Lower forecast dairy payout for 2014-15, grazing arrangements for clients, and the bobby calf industry, even though the calf tally is growing consistently and they have cited a 17% growth in numbers coming up.

Disc- Now holding and will look to add to my holding astime goes on. I look forward to the HY report end of February

Thanks BFG,

What is driving the 50% eps growth? It that your forecast or the company?
What is the tax situation? They paid no tax last year. Will they need to start paying tax this year?
It looks like they have $5.6mil in debt. (pg.7 of AGM preso). Is that correct?

[bunter]

Its MCAP is $7m.
It might be difficult and expensive to get in to and out of the stock.