Half year EBIT guidance of $0.6 mil, which implies that the food business is now running at breakeven at best, which isn't good, considering FFI owns all of the property used for manufacturing.

Like a lot of other food manufacturing businesses, things have gotten tough in the last 18 months. You only have to look at NOU, HLF, FOD to see similar stories (although I'd argue management is of poorer quality for those businesses)

As I said below, the business is trading below book value (especially if you add back the deferred tax liabilities) but I'm not sure book value is very helpful when valuing this business, given that selling the assets would result in realising some large tax deferred liabilities.

I've got no idea what the value of the food business is at this stage but if I assume normalised profit is around $2 mil and apply a 5x multiple given the lumpy, capital intensive nature of the business you get $10 mil.

$20 mil is fair for the property, if not a bit conservative from the research I've done.

Add these together and you get an implied SP of around $3, which is all I'm currently willing to pay.

The food business needs more scale and diversification, which I imagine is difficult to achieve in WA. I would support a counter cyclical acquisition of a similar business in order to achieve this, especially given how strong the balance sheet is.

August 22:

I've decided that I've given given too much value to the food business and that whilst the property investment is valuable, the actual book value will probably never be realised. I probably need to value this purely on a cash flow basis. Given the struggles that the food business has had with inflation and the recent announcement of a property acquisition followed which was followed by a subsequent announcement that the transaction will no longer be preceding, I'm withdrawing my prior valuation and sitting on the side-lines for a bit.

May 2022:

I've revisited this one again and come to a similar valuation, assuming that margin damage due to supply chain issues can eventually be recovered.

Using Opco/Propco valuation approach similar to the below I get a valuation that is very close. This time I stripped out the land used by the food business and still got a similar valuation with an 8x EBIT multiple on the food business (assuming it pays a rent that implies a yield of around 6%).

August 2021:

FFI has two businesses. One is a bakery goods manufacturing business and the other is an investment in a large parcel of industrial/commercial land, some of which is developed and leased out to tenants (I believe one is Veolia). FY21 results were released this week. My analysis is as follows: Net profit before Tax from continuing operations has increased 62% since 2018 ( I've stripped out a business which no longer operates) Revenue has from continuing operations has increased about 33% whilst expenses have increased at a slightly slower rate of 29% - it's likely that this is due to increases in income from the investment property though (which reports a net income figure and no expenses). Cash flow from continuing operations has also grown substantially since 2018 (circa 56%), however cashflow conversion has averaged around 85% by my calculations which isn't ideal and struggles to keep up with profit. I believe the reason is as follows: Inventories have grown by 92% from $3.8 million in 2018 to $7.3 million today. This figure is of some concern to me and I'd like to see it edge down. Valuation: This is a some of the parts valuation- The food business generates about $3.1 million in NPAT and for the purposes of this valuation I'm giving it a 12x multiple. This includes the roughly $7mil worth of land and buildings that the business uses to operate out of which it effectively pay no rent on. This equates to $37mil. Then there is the investment property and vacant land. The carrying value of $20.5mil is probably justifiable by what is currently coming in the door in rental income. By my count there is an additional 16,000 sqm of land which is currently vacant and undeveloped. The value of this is hard to estimate however similiar blocks look to be on the market at around $300/psqm. This equates to about $5mil. There is also about $5mil worth of cash on the balance sheet So we get: Food: $ 37m Investment prop: $ 20.5m Vacant land/revaluation of land holdings: $ 5m Net cash $ 5m Val $67.5m Market cap is currently about $72mil. Upside could come from property holdings, need to watch food business going forward.