Swiss Water
Decaf is a company I have been following for a few years – they have made
significant progress culminating in the completion of a new, bigger facility at
the end of 2019. Swiss Water Decaf, as the name suggests, is a Canadian producer
of decaffeinated coffee, using its SWISS WATER® Process to decaffeinate green
coffee without the use of chemicals. The processed coffee is then sold to more
than 50 countries, of which the lion’s share of the production goes to the USA,
followed by Canada.
With the
opening of a new European subsidiary in January 2019, the company is now also
selling its specialty coffee overseas.
Total
volumes shipped increased by 16% in the first 9 months of 2019, 11% in 2018 and
5% in 2017. Due to additional capacity coming from the new facility, new
geographical markets and a consolidation of the decaf market, it is expected
that volume trends continue to perform nicely.
Valuation
Swiss Water
Decaf is a hidden gem with a market capitalization of only roughly C$60 million. The
company has incurred some debt to finance the above mentioned expansion yet
debt level is still on very manageable level and estimated to decrease now with
completion of the new facility. Swiss Water Decaf generated approx. C$5.6
million in pretax operating cash flows in 2018 – a number which is expected to
increase significantly with additional volumes in the next years.
A sustainable
quarterly dividend of C$0.0625 per share is currently paid, which translates
into a dividend yield of 3.7%. This reflects a decent and safe compensation in
the current interest environment.
What’s
next?
Swiss Water
Decaf is a solid growth story with a robust balance sheet, and a clear strategy
in a growing market. If the company is able to boost its sales as planned with
the added capacity and making use of the operational leverage, the price per share should be trading at least around C$10.
Current
Price
C$6.70 per
share
No comments:
Post a Comment