I agree MIKL seems relatively quite overpriced. Note that I sent a letter a while ago to MIKL CEO (not expecting a response, which I did not get) suggesting that he could pay a 50% premium in stock for CALM and make a smart deal for his shareholders.
2/3 of costs = grain is too high. IPO prospectus shows the following breakdown of CALM costs, in cents per dozen eggs, for FY 6/1/96 (8 years shown):
feed cost - 26.6 cents
hen amortization and mortality - 7.2
facilities and other farm costs - 8.9
purchases, processing, distribution, SG&A - 22.6
TOTAL - 65.3 cents
Average Selling Price - 68.4
Profit - 3.1 cents
Feed costs were not over 50% in any of the 8 years. I might add that I am not sure that CALM thinks they make the highest margins when feed costs are low, because there is no pressure on marginal production, and egg prices tend to be low as well. CEO Adams would be a better person to talk to about this point, and your interesting point about Mexican production. But these "farms" are really much more automated than in the old days where the farmer's kids go collect the eggs in the morning :-)
Switch from family farm tax status, per prospectus comment, would cost them nothing in reported earnings ("as these taxes have been accrued and are reflected on the Company's balance sheet") but $3.1
million in cash.
I certainly agree that value added makes sense but, as you point out,
MIKL paid a good price for a producer. (What price did they pay on a price to sales basis vs. CALM?)
My view is that if you have nothing better to do with the money, and if CALM is not too far above book, it is an interesting long term investment for the patient. (I found the growth reference I was looking for - a year ago they said they had 7 1/2 to 8% market share
of US egg industry and their business plan was to increase market share to 20-25% over five years.)
Comments?
Jeff |
