| | | E_K_S,
Thanks for the suggestion to look into Village Farms. Here are my thoughts:
There were two things I liked: cash had been increasing since 2015, and simultaneously debt had been decreasing.
Also liked the fact that sales were increasing steadily. But something happened in 2018. I’m still in the process of figuring out what caused that slump.
Unfortunately, there were a lot of things I didn’t like. OCF falls off a cliff in 2017 and 2018, looks like that’s due primarily to changes in inventory increases in 2018 (by $5,180) and receivable increases (by $2,593) in 2017. Plenty of YOY swings, looks like they’re not managing their working capital too well.
Earnings are pretty clumpy. In 2016, they get a bump from a revaluation of land. That’s an unsustainable increase of $6,132. In 2018, it’s the JV, which inflates earnings (though not cash flows). For me, JV’s are a double-edged sword, they’re an added bonus, but they’re not part of the core operations of a business. It’s not something to be relied on for income.
Looking at the balance sheet, it appears that they don’t have too much debt, but…
When you look at annual maturities, I see a looming liquidity risk. In 2021, they’re going to get hit with $28,551K worth. If cash flows were stable, and they didn’t have to issue a ton of common stock (like they did in 2018: $23,492K), then I wouldn’t worry as much. Also, note about issuance, that dilutes the shareholder’s piece of the pie.
From their earnings calls, management is looking to do too many things, but don't have a secure capital base. They are in the process of expanding their facilities at Delta 3, launching a new brand (heavy R&D investment), and looking to launch retail sales. At the same time, their assets are caught up as collateral:
1. FCC loan - pledged promissory notes, first mortgage on VFF owned greenhouse ($114,554)
2. Operating Loan -promissory notes, accounts receivable and inventory ($38,007)
For a company with all of the above, I see 11x PE as expensive.
Think I’ll pass on this one, but appreciate that this got me to do some digging.
Anne K. |
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