Q1 "I enjoyed your article but I think VLG offers materially better value than your article suggests. Cavendish’s latest estimates show adjusted eps of 5.4p for FY 23 and 6.4p for FY 24 which equates to PEs of only 7.2 and 6.1 using a share price of 39p. This is materially lower than than the 15 quoted in your article!!"
--> If you do the maths Cavendish think "adj. EPS" (not EPS using net income) is 5.4p in FY23. Multiplied by the number of shares that's earnings of £6.8m. Which doesn't tally to their adj. EBITDA?!
-->15X was what I consider a fair valuation approach i.e. a 15 times multiple. Sorry if that wasn't clear. My own EPS (based on actual NET income not adjusted) is 0.1p in FY23 and grows to 6.6p in FY24. So a FY24 forecast PE of 5.9 - but that's PBT. Not an adjusted EBITDA
Q2 "Note VLG has been a buy and build story and so there is a lot of goodwill from acquisitions (much of which was allocated to the brands acquired), this results in a a chunk of intangible ( goodwill & acquired brands) amortisation going through the P&L. It is standard for all companies to add this back when calculating adjusted eps."
--> I don't disagree.
"I would also highlight the very high free cash flow forecasts ( after capex, tax and interest payments) generated by the business. Based on Cavendish forecasts free cash flow is £6.8m for FY23 and £8m for FY 24 . This is a free cash flow yield of 13.8% and 16.3% respectively based on a current share price of 39p."
--> You are right to highlight those forecasts. While the fruit has taken a few years to mature, the share price is barely ahead of when it was struggling with chronic oversupply of one of its (then) core products. The FCF profile has substantially changed as my article hopefully also highlights, and the market hasn't yet recognised this (in the price).
Intersting company , bought some shares after looking into it , and fits my preference for fmcg companies; With regards to being bought by Supreme, I think there are areas which would be a nice fit. VLG could team up with Supreme to get their Dentyl business going which is lagging although there seems to be some uniqueness/differentiatiin to the brand.Lyft is another option which would benefit from broader distribution capabilities.
Anyway beeing a fan of Supreme and before stumbling over VLG i thought there would be some logic if Supreme ventured into the OTC medicine Space , exploring adjacencies to their wellness products or even adding new categories to their portfolio.
I've been asked some questions by a reader:
Q1 "I enjoyed your article but I think VLG offers materially better value than your article suggests. Cavendish’s latest estimates show adjusted eps of 5.4p for FY 23 and 6.4p for FY 24 which equates to PEs of only 7.2 and 6.1 using a share price of 39p. This is materially lower than than the 15 quoted in your article!!"
--> If you do the maths Cavendish think "adj. EPS" (not EPS using net income) is 5.4p in FY23. Multiplied by the number of shares that's earnings of £6.8m. Which doesn't tally to their adj. EBITDA?!
-->15X was what I consider a fair valuation approach i.e. a 15 times multiple. Sorry if that wasn't clear. My own EPS (based on actual NET income not adjusted) is 0.1p in FY23 and grows to 6.6p in FY24. So a FY24 forecast PE of 5.9 - but that's PBT. Not an adjusted EBITDA
Q2 "Note VLG has been a buy and build story and so there is a lot of goodwill from acquisitions (much of which was allocated to the brands acquired), this results in a a chunk of intangible ( goodwill & acquired brands) amortisation going through the P&L. It is standard for all companies to add this back when calculating adjusted eps."
--> I don't disagree.
"I would also highlight the very high free cash flow forecasts ( after capex, tax and interest payments) generated by the business. Based on Cavendish forecasts free cash flow is £6.8m for FY23 and £8m for FY 24 . This is a free cash flow yield of 13.8% and 16.3% respectively based on a current share price of 39p."
--> You are right to highlight those forecasts. While the fruit has taken a few years to mature, the share price is barely ahead of when it was struggling with chronic oversupply of one of its (then) core products. The FCF profile has substantially changed as my article hopefully also highlights, and the market hasn't yet recognised this (in the price).
Intersting company , bought some shares after looking into it , and fits my preference for fmcg companies; With regards to being bought by Supreme, I think there are areas which would be a nice fit. VLG could team up with Supreme to get their Dentyl business going which is lagging although there seems to be some uniqueness/differentiatiin to the brand.Lyft is another option which would benefit from broader distribution capabilities.
Anyway beeing a fan of Supreme and before stumbling over VLG i thought there would be some logic if Supreme ventured into the OTC medicine Space , exploring adjacencies to their wellness products or even adding new categories to their portfolio.