G Willi-Food International Ltd trading at a discount to its NCAV $WILC

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On July 29 we reported that, “The best value stock in the Small and Micro Screener is WILC G Willi-Food International Ltd (NASDAQ:WILC) on a multiple of -0.42 times operating income”.

Willi-Food is a company that specializes in the development, marketing and international distribution of kosher foods.

The company’s share price is up over 25% in the past 3 months to $4.49 from $3.60 on May 2 this year.

(Source: Google Finance)

Today we’ll take a look at WHY?

The company recently released its Q1 2016 report for the quarter ending March 31, 2016.

First Quarter Fiscal 2016 Highlights (income statement highlights compared to same period last year):

  • Operating income increased 284.9% from first quarter of 2015 to NIS 8 million (US$ 2.1 million), or 9.6% of sales.
  • Gross profit increased 21.8% from first quarter of 2015 to NIS 20.8 million (US$ 5.5 million), or 25.2% of sales.
  • Net profit increased 80.7% from first quarter of 2015 to NIS 4.7 million (US$ 1.3 million), or 5.7% of sales.
  • Earning per share of NIS 0.36 (US$ 0.1)
  • Cash and securities balance (net of short-term bank debt) of NIS 234.6 million (US$ 62.3 million) as of March 31, 2016.

Willi-Food’s operating divisions include Willi-Food, a distributor of a broad variety of kosher foods, and its wholly-owned subsidiary Gold Frost, a designer, developer and distributor of branded and innovative kosher dairy food products.

First Quarter Fiscal 2016 Summary

Sales for the first quarter of 2016 decreased by 4.1% to NIS 82.6 million (US$ 21.9 million) from NIS 86.2 million (US$ 22.9 million) recorded in the first quarter of 2015. Sales decreased in the first quarter of 2016 primarily due to: (i) the timing of thePassover holiday, which occurred during the reporting period in the second quarter, while in 2015 the holiday occurred in the first quarter; (ii) the impact of shortage of inventories in January 2016 due to, among other things, the timing of the Passoverholiday, which resulted in; and (iii) market decline in food product consumption by the Israeli consumer.

Gross profit for the first quarter of 2016 increased by 21.8% to NIS 20.8 million (US$ 5.5 million) compared to NIS 17.1 million(US$ 4.5 million) recorded in the first quarter of 2015. First quarter gross margin was 25.2% compared to gross margin of 19.8% for the same period in 2015. The increase in gross margin was the result of the Company’s strategic focus on selling a favorable mix of products which generate a higher gross margin.

Willi-Food’s operating income for the first quarter of 2016 increased by 284% to NIS 8 million (US$ 2.1 million) compared to NIS 2.1 million (US$ 0.55 million) recorded in the first quarter of 2015.

Selling expenses decreased by 13% from the comparable quarter of 2015 and the general and administrative expenses decreased by 18.8% from the first quarter of 2015 to NIS 3.8 million (US$ 1 million) compared to NIS 4.7 million (US$ 1.2 million) mainly due to significant decrease in costs of management salaries of Mr. Zwi Williger, the Company’s former Co-Chairman of the Board of Directors and president, and Mr. Joseph Willigera former director and president of the Company, which totaled NIS 1.0 million (US$ 0.3 million).

Willi-Food’s income before taxes for the first quarter of 2016 was NIS 6.3 million (US$ 1.7 million) compared to income before taxes of NIS 3.8 million (US$ 1 million) recorded in the first quarter of 2015.

Willi-Food’s net income in the first quarter of 2016 was NIS 4.7 million (US$ 1.3 million), or NIS 0.36 (US$ 0.1) per share, compared to NIS 2.6 million (US$ 0.7 million), or NIS 0.2 (US$ 0.05) per share, recorded in the first quarter of 2015.

Willi-Food ended the first quarter of 2016 with NIS 234.6 million (US$ 62.3 million) in cash and securities net of short-term bank debt. Net cash from operating activities for 2016 first quarter was NIS 0.2 million (US$ 0.05 million). Willi-Food’s shareholders’ equity at the end of March 2016 was NIS 404.4 million (US$ 107.4 million).

Business Outlook

Mr. Iram Graiver, CEO of the Company, commented, “We are very pleased to report a strong quarter with the new management team. Our financial results have significantly improved, we continued to gain traction with new customers while product sales to existing customers also continued to grow as a direct result of our new strategy to organically grow our customer base and product line and in addition to improve our commercial relations with our suppliers.

Moving forward, we intend to continue to leverage market demand in order to maximize our revenues and expand margins. We intend to reinvest in the development of the Company in order to maximize profitability and increase long-term value for our shareholders.”

That’s the good news, now for the bad news.

The company also reported:

Note regarding Israeli Securities Authority Investigation

On February 17, 2016, a search was conducted in the offices of the Company, the Parent Company, BSD Crown Ltd., and B.G.I Investments Ltd. (collectively, the “Group”), by the Israeli Securities Authority (the “Authority”), during which various documents and computers were taken from the Group’s offices. Similarly, to the best of the Company’s knowledge, a number of executives in the Group are  being investigated by the Authority.

Similarly, Mr. Gregory Gurtovoy, chairman of the Company’s board of directors and the board of directors of the Group’s companies (and the indirect controlling shareholder therein was detained for interrogation by the Authority for three days, after which, he was placed under house arrest for a period of two weeks (which has since ended). According to the exhibit attached to the arrest warrant, Mr. Gurtovoy was arrested on the suspicion of the crimes of fraudulent acquisitions under aggravating circumstances, falsifying corporate documents, fraud, breach of trust in a corporation, money laundering, as well as misleading reporting.

To Company management’s knowledge, the investigation by the Authority relates to an investment of approximately US$ 2.25 million (the “Investment”) made during January 2016 (from sums previously held in a bank account of a subsidiary of the Company) in the form of bonds (the “Bonds”) of a European company (the “Issuer”), ” which allegedly served as a collateral to a loan obtained by the controlling shareholder or another individual, and which was unrelated to the Company’s operations.

The Investment was carried out by B.H.W.F.I Ltd., a wholly owned subsidiary of the Company (“BHWFI”), pursuant to subscription forms to purchase 300 Bonds with a nominal value of US$ 10,000 each (“Subscription Forms”). In practice, BHWFI acquired only 225 Bonds (after withholding tax). The Bonds bear an annual interest rate of 6%, payable semi-annually on June 30 and December 31 of each year as of the issue date until the final maturity date of 31 December 2018. The Issuer has the right to repay the Bonds with prior notice of 30 days without penalty. As of the balance sheet date, the Company decided to value the Bonds according to their nominal cost.

On May 18,  2016, further to a request by BHWFI to the Issuer, the Issuer confirmed (including by way of the provision of extracts from the local state Land Registry and Registrar of Companies) that the Issuer is a special purpose vehicle which holds full title to the primary asset of the Bonds, and that the Investment funds were received by the Issuer and registered in favor of BHWFI (the “Response”).

In this regard it should be noted that in response to a query from BHWFI, the Issuer clarified that it has no information in its possession relating to a pledge or undertaking given in connection with the Bonds, and information concerning a pledge or undertaking with regards to the Bonds is not the type of information that the Issuer would typically  possess.

To the Company’s best knowledge and based on documents in its possession and clarifications it has obtained, including requests to all officers and authorized signatories of BHWFI, no pledge and/or undertaking was given in connection with the Bonds, and in any case there is no validity to any obligation, if any, without the requisite corporate authority. Additionally, BHWFI received confirmation from Bank Leumi Le-Israel Ltd. (“Bank Leumi”), the holder of BHWFI’s bank account (the “Account”), on  May 25, 2016, that there are no pledges on the Account holding the Bonds.

In addition, in the Response, the Issuer alleged that BHWFI supposedly undertook to invest in the Bonds in three installments for a total amount US$ 5 million and that a balance of US$ 2.75 million for the Bonds has not yet been paid (the “Demand” or “Alleged Undertaking”). No supporting documentation or other basis for the Alleged Undertaking was attached to the Demand, which stands in contradiction to previous correspondence with the Issuer.

As of the date of  this report, requests by BHWFI to the Issuer, including by way of a local law firm (in the Czech Republic), to clarify the Demand and receipt of supporting documentation for the Alleged Undertaking, have been left unanswered.

To the Company’s best knowledge, based on documents in its possession and clarifications it has obtained, including requests to all of the officers and authorized signatories of BHWFI, the Company did not grant Issuer any undertaking to purchase additional Bonds beyond the amount undertaking in accordance with the Subsciption Forms, namely 300 Bonds, and in any event, the Company believes, based on the opinion of its legal counsel in Israel, that there is no validity to any obligation, if any, made without the requisite corporate authority.

It is apparent from the extracts of the Registrar of Companies received originally by BHWFI as a result of their attachment as annexes to the Response, that the ultimate controlling shareholder of the Issuer is the Austrian bank – Meinl Bank.


Let’s keep in mind Ben Graham when we look at Willi-Food’s valuation. Ben Graham loved these types of stocks, defining the Net Current Asset Value (NCAV) or liquation value as:

Net Current Asset Value (NCAV) = Current Assets – Total Liabilities

According to PRNEWSWIRE the company has current assets totaling $97.5 million.


According to PRNEWSWIRE, the company also has $5 million in total liabilities:


So, with that being the case. The company has a net current asset value per share of (current assets $97.5) minus (total liabilities $5 million) which equals $92.5 million, divided by the number of outstanding shares (13,240,913 shares at March 31, 2016), giving it a NCAV per share of $6.98.

With the company currently trading at $4.49, this represents a 35% discount to its net current asset value per share.

In our ‘Small & Micro Cap Screener’, the company has a current market cap of $59 million. With cash in excess of debt of $62 million, that means the company has a negative enterprise value of (-$2 million). With operating earnings of $7 million, that gives Willi-Food an Acquirer’s Multiple of -0.28.

In summary, the company is selling at a discount to its NCAV per share and has an Acquirer’s Multiple of -0.28, therefore the company represents good value.

If you want to understand more about a negative Acquirer’s Multiple here are two great articles:

Negative Enterprise Value: A Primer

Returns On Negative Enterprise Value Stocks: Money For Nothing?

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