MFB - My Food Bag

[Muse]

Reasons? I agree, actually, reasons being I see it as more an income play rather than growth. And more likely to tick along as long as they keep adding customers and products.

More or less same as you. It's not a bad company per se (not a great one either), just was a terrible investment at IPO. Only moat is its brand & first mover advantage, whatever that is worth. It's got yield and it has an option value associated with a takeover at some point. My first ever post on ST was on MFB, and my concerns were all around cost and operational performance.

Long time lurker, first time poster here - hi everyone!

First post on My Food Bag - maybe a risky proposition (both the wisdom of my first post and MFB shares!).

I too like most was highly skeptical of MFB both both when it was being talked up years before the float and when the pricing was set. Clearly most of the discussion was around the sustainability of its revenue and outlook from a high watermark (so won't repeat) but what concerned me more was the potential for EBITDA margin compression and its valuation. MFB is quite a labour intensive business with all the assembly that is required and wages were already rising with minimum wage increasing, and wages above but near M.W. needed to lift proportionately to keep favour w/ the employee. Food prices are also volatile and can go up but a big portion of food costs at the 'near retail' level are labour costs from the producers, and fuel. MFB isn't cheap and competes with supermarkets who have massive cost advantages so I wondered if it had sufficient headroom to absorb costs. One of the listed comparables in Australia has just seen its margins decrease by around a third, so I think that risk remains real. I'm more comfortable on the revenue front.

The risk that worries me is an operational failure. It's a big supply chain through to end distribution and one that is pretty specialised so I assume MFB may have been working with lots of excel spreadsheets and random & non bespoke ERMs. It would be pretty easy to see duplicate orders get sent out, un recovered and not delivered raw materials, etc. Pretty dependent on a few people to get right and I see they have had some exits is area. I see that as being derisked over time as being in the public eye will bring more board focus on investment on systems and processes.

Obviously price a lot of it comes down to price and the IPO was woefully overvalued and surprised the instos took it - they didn't act very cartel like in fighting for better pricing. I did take a very small shareholding last week at 1.26 just before the AGM as I was hoping for and rec'd a reconfirmation on trading. In my mind in recent price bands the the business is okay for investment. It's still an interesting opportunity - superb cashflows, good margins, brand with consumers, long term growth expected in the industry. MFB continuing to carve out and defend its niche and margins key to all that which is why I have avoided investing anything meaninful into it.

Basilcat though your analysis on the price growth from 2016 to now a bit flawed. In 2016 with PE invested into MFB, the value of the *business* as a whole (IE its enterprise value) was a lot more than $50m. We know the value of the equity at purchase but not the debt. It's like someone trying to figure out how much you paid for a house by seeing what your deposit was without knowing what mortgage you took out to buy the whole thing. Same with waterman invested. THe value of the business then on an enterprise value to now is less dramatic, but still dramatic. Which shouldn't be too surprising as MFB was probably one of the biggest beneficiaries of Covid in NZ, 2nd to FPH.

Disc: recently purchased shares in MFB for first time, no other connections past or present.

[winner69]

Jeez, carnage on NZX continues ...I see MFB is getting very close to the $1.00 mark

Hasn't even had its first anniversary of being listed

[nztx]

My Antennae say still a bit north of what would be a good Meal Deal Steal


The SP graph trend is consistent - no two ways about it - hopefully like the service

[Ferg]

More or less same as you. It's not a bad company per se (not a great one either), just was a terrible investment at IPO. Only moat is its brand & first mover advantage, whatever that is worth. It's got yield and it has an option value associated with a takeover at some point. My first ever post on ST was on MFB, and my concerns were all around cost and operational performance.

Hey Moose

I put up an analysis last year, which is here, and there are some other follow up posts. In addition nxtz also put in some work plus a few posts after that too. I'm not sure much has changed since then but there might come a point where the SP reflects good value.

You mentioned in your own quoted post about the use of spreadsheets etc and concerns over logistics etc. Back then you said "The risk that worries me is an operational failure. It's a big supply chain through to end distribution and one that is pretty specialised so I assume MFB may have been working with lots of excel spreadsheets and random & non bespoke ERMs."

I see the operational side of the business as a strength, rather than a risk. Granted access to labour may become an issue with imposed isolation for staff, but that is distinct from their logistical systems and processes. Per my post #271 I explored that side of things, and I had this to say back then:

FY21 has a projected inventory turn of 107 times per year, or 8.9 times a month and FY22 is 6.8 times a month. In other words they have on average less than 1 weeks inventory on hand. Granted that is the nature of shifting fresh food but IMO it is actually impressive. A good proportion of the inventories on hand will have a longer shelf life such as packaging and spices etc. which will inflate inventories, but these sorts of numbers show a high degree of logistical coordination. Earlier comparisons to a supermarket by others are not too wide of the mark.

The manpower and computing power to achieve these numbers should not be underestimated. An investor would want to see continuity of systems and procurement people given logistics is the backbone of this business. Recent investment into better systems will likely be central to achieving cost reductions via better purchase planning and less wastage etc. [snip] From a logistics perspective, this is an interesting business [snip].

I'm not aware of any logistical failures at MFB so I believe the logic still stands. One measure will be inventory turn, another will be DIFOT but we may not get to see that (haven't checked). There are good mid-range systems nowadays for exactly this sort of thing, and the fact they pump out so many meals every day is testament to their systems and processes. We would want to see continuity of staff in these areas to ensure the logistics side of the business operates like a well-oiled machine.

Disclosure: not a holder, but currently seeking value.

[Muse]

Hey Moose

I put up an analysis last year, which is here, and there are some other follow up posts. In addition nxtz also put in some work plus a few posts after that too. I'm not sure much has changed since then but there might come a point where the SP reflects good value.

You mentioned in your own quoted post about the use of spreadsheets etc and concerns over logistics etc. Back then you said "The risk that worries me is an operational failure. It's a big supply chain through to end distribution and one that is pretty specialised so I assume MFB may have been working with lots of excel spreadsheets and random & non bespoke ERMs."

I see the operational side of the business as a strength, rather than a risk. Granted access to labour may become an issue with imposed isolation for staff, but that is distinct from their logistical systems and processes. Per my post #271 I explored that side of things, and I had this to say back then:



I'm not aware of any logistical failures at MFB so I believe the logic still stands. One measure will be inventory turn, another will be DIFOT but we may not get to see that (haven't checked). There are good mid-range systems nowadays for exactly this sort of thing, and the fact they pump out so many meals every day is testament to their systems and processes. We would want to see continuity of staff in these areas to ensure the logistics side of the business operates like a well-oiled machine.

Disclosure: not a holder, but currently seeking value.

My observation on risk involving supply chain stemmed from them losing at least two (that I know of) senior senior operations managers over the last few years. I had heard around the traps that the systems and processes up until a few years ago weren't flash and involved more excel than desirable. New systems and processes implemented in the lead up to the IPO which is great and I noted that as derisking supply chain failure once bedded in, but always implementation risk while these are implemented over a period of time. I'd assume they are bedded in. Point remains its a huge supply chain with many moving pieces - easy to catch a bullet somewhere - more particularly with covid.

I agree if they achieve operational excellence it is a bit of a moat. That hasn't stopped those germans from growing marketshare far faster. I'd imagine the germans are pretty good with supply chains and ERM software

I don't have any particular issue MFB per se - I scratch my head and ponder it as an investment, once every few months, while I watch it continue to drop.

Inflation the big worry - labour at MFB, and input costs, and MFB's ability to pass it on.

[artemis]

..... I'm not aware of any logistical failures at MFB so I believe the logic still stands. One measure will be inventory turn, another will be DIFOT but we may not get to see that (haven't checked). There are good mid-range systems nowadays for exactly this sort of thing, and the fact they pump out so many meals every day is testament to their systems and processes. We would want to see continuity of staff in these areas to ensure the logistics side of the business operates like a well-oiled machine.

Disclosure: not a holder, but currently seeking value.

As a longstanding customer I can attest to close to 100% DIFOT. A very very few times an item has been missed, usually not material eg packet of seasoning, but a couple of times over the years a more material ingredient. Dealt with by speedy credit. Deliveries can have more than 40 items so systems are pretty sharp. Rarely there is a mid week email to say that an item is not available and has been substituted. Recently one cut of bacon was substituted for another cut for example.

I have mentioned before on this thread that there is now a very long list of items that can be added to a delivery, pantry, heat and eat, bundles for eg BBQ, brunch, breakfasts, Valentines Day. The supply chain is almost a non issue as these items are ordered and paid for a week in advance so suppliers know exactly what and when to supply. And many are shelf stable anyway.

However, there was a delivery stuff up recently Not sure of the details as not affected, but with the following week's delivery a sorry, a recipe and code for those affected to add a free baking mix to the next order.

[Beagle]

Sounds like as a customer you're impressed artemis. Not so good for customers who were strongly encouraged to "tuck into" the IPO though.
Very "impressive" chart. Just steadily down at virtually the same pace ever since it listed. Its pretty clear to me that it was the promotors who were the ones who "tucked in" to naïve investors, many of which may have been customers.

I think fear over Covid infection persists as a tailwind for the company for a while but those tailwinds can't last forever.

Common sense says avoid this until a bottom is clear in the share price and a new uptrend starts, (assuming this ever happens), such that there's a clear break up through the 100 day MA. Trying to pick a bottom before that is likely to lead to more pain.

[bottomfeeder]

Yep have to agree, Too much competition, while product is good, just a struggle to build up market share. Only way this stock will reach IPO is if the NZ Population doubled very quickly.

[artemis]

Sounds like as a customer you're impressed artemis. Not so good for customers who were strongly encouraged to "tuck into" the IPO though.
Very "impressive" chart. Just steadily down at virtually the same pace ever since it listed. Its pretty clear to me that it was the promotors who were the ones who "tucked in" to naïve investors, many of which may have been customers.

I think fear over Covid infection persists as a tailwind for the company for a while but those tailwinds can't last forever.

Common sense says avoid this until a bottom is clear in the share price and a new uptrend starts, (assuming this ever happens), such that there's a clear break up through the 100 day MA. Trying to pick a bottom before that is likely to lead to more pain.

I was really just responding with some DIFOT experience. One of the competitors stuffed up DIFOT really badly recently and I doubt has recovered yet.

[huxley]

With a net (fully imputed) after tax return of 6.38% you’re just about keeping up with inflation