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Sunday, February 3, 2013

Alliance Select Foods International, Inc. (FOOD)

Company Profile:

Alliance Select Foods International, Inc. (FOOD), formerly Alliance Tuna International, Inc. started commercial operations in 2004 to engage in manufacturing, canning, importing, and exporting of food products such as marine, aquaculture and other processed seafoods. FOOD exports to Europe, North America, Asia, Africa and South America, and is a "private label manufacturer" of canned tuna and processes and tuna cans using its customers' brands.

The primary product of the Company is canned tuna in the institutional and retail can sizes. To enhance margins, FOOD also processes the by-products and scraps from its tuna processing operations into fishmeal and sells these to the domestic and export markets. The Company has a marketing representative office in Bangkok, Thailand to tap the network of buyers and brokers who use Thailand as a base to buy canned tuna.

In 2008, the Company established a subsidiary, PT International Alliance Foods Indonesia, which acquired the assets of an Indonesian tuna cannery located in Bitung, in the island of North Sulawesi. FOOD has significant investments in similar-typed businesses in New Zealand and US.  

Income and Operations

FOOD currently has ownership interests in below companies:

from FOOD's Sept quarterly report

PTIAFI is primarily engaged in canned fish processing exclusively for international market.

PFNZ is engaged in the business of processing, manufacturing and distributing smoked salmon and other seafoods under the Prime Smoke and Studholme brand.

BGB is primarily engaged in manufacturing salmon and other seafoods with plant operations in General Santos City.

AMHI is a special purpose entity with primary function as a property holding company. It allows the members of the group the use of its properties under lease agreements.

ASFIC does not have any revenues or expenses as its sole purpose is solely to acquire investments.

SPENCE specializes in the production of smoked salmon and other seafoods with plant operations in the US.

FOOD enjoyed a 79% increase in revenues primarily due to contributions from recently acquired Spence.  Last June 2011, it declared a stocks right offer to fund its investments acquisitions.

Stocks Valuation

FOOD currently trades at 19x PE and recently enjoyed a steady rise. Consumer companies are valued higher in anticipation for the increse in consumption in the coming elections.

What's to Like?

FOOD is aggressively acquiring similar-typed companies that can help boost its profits and sustain their growth. The addition of product lines from tuna products to include salmon and other seafood addresses the changing food consumption patterns.

Their revenue sources is heavily concentrated on Europe, but takes advantage of lower production costs by keeping their operations in cost-effective locations. They have also managed to sustain their gross profit at around 12-14%.

Why Get Cautious?

Their operations is heavily affected by global economy. The problems in Europe has somewhat subsided a little but is still something to watch out for. Their financial results can also be inadvertently affected by the strong peso, as the revenues they earn are usually denominated in foreign currencies.

Buffett Recommends...

Alliance Select Foods International, Inc. gives investors a chance to invest outside the Philippines. Their operations does not so much rely on financial conditions inside the country, but on global conditions as a whole. The situation in Europe may even benefit FOOD if it turns for the worse as consumers will tend to spend on cheaper priced commodities such as processed canned foods. It is up to FOOD on how they react and take advantage of the circumstances ahead.

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The information provided in our review may not be as relevant today given the time gaps and change in varying economic conditions. While we strive to account every business possibilities that may affect a company's profitability, this is not a recommendation to buy or sell these particular stocks. We cannot be held liable for any investment decisions made in consequence to our articles.