Background
Del Monte has a 23,000-hectare pineapple plantation in the Philippines, 700,000-ton processing capacity and a port beside the Cannery. Del Monte operates the world's largest fully integrated pineapple operation, and has a 89 years of experience in growing and processing pineapples.
Del Monte also owns S&W brand, which enable the group widen its product offering.
In 3rd Quarter 2013, Del Monte announced a US$1.65 billion deal to acquire Del Monte Foods. US$930 million will be finance by ring-fenced debts, and US$745 million will be funded by equity & fund raising.
Del Monte has raised US$155 million from a rights issue in March 2015.
In 2016, Del Monte has seek shareholder's approval of the preference shares 5.5% - 7% , up to US$350 million.
Since the announcement of the acquisition, Del Monte's share price has dropped from 92.5cts ( adjusted for rights ) to 29cts on 8th Dec 2015.
Is the drop overdone?
1) Firstly, this is a rather huge acquisition by Del Monte Pacific. We are currently into the 3rd year of integration of business after Oct 2013. Del Monte Pacific's share price has lost almost 68% from 92.5cts to 29cts. Personally, i think the selling is overdone. At this price, we are already buying Del Monte's recovery from the integration of business.
2) Secondly, Del Monte Pacific is very structured in planning its finances for this deal. However, market conditions delayed the issue of preference shares to reduce its gearing. However, i think the effect of the delay is factored into the low share price.
3) With the US$360 million preference shares going to list, it will further reduce its finance expenses.
My take for Del Monte
1) Buy & Hold for the long term. In a research report, its peers are trading at an average of 20x PE ratio, whereas Del Monte is trading at 8.4x. If market conditions improved, i believe, Del Monte is worth $0.58 or 15x PE ratio.
2) Very few companies own the production & processing of raw materials. I believe, Del Monte with Del Monte Foods deal, will increase its presence to the market, and hence fetching a higher valuation in months or years to come.
Comments