contentSlug

type

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slug

ContentPageContentQuery

content

trendingContent

query ContentSlug_ContentQuery(
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) {
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}

fragment CompanyDetails_Content on Content {
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  companies {
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}

fragment ContentBasicInfo on Content {
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  tags {
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  ...PublishingDetails
  ...Reactions
}

fragment ContentMetadata on Content {
  __isContent: __typename
  type
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  alternatePageUrls: translations {
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  imgUrl
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  authors {
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  companies {
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  tags {
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  ... on Video {
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  ... on Webcast {
    liveTime
    videoUrl
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}

fragment ContentPageContentQuery_13QmVO on Query {
  content(slug: $contentSlug, type: $type) {
    __typename
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    htmlBody
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    ... on ThirdPartyCompanyReport {
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    ... on StockExchangeRelease {
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  ...TrendingContent_1jQ2Cn
}

fragment ForumPosts on ForumPost {
  text
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}

fragment KeyFigures_Content on Content {
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}

fragment PriceAndRecommendation_Content on Content {
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}

fragment PublishingDetails on Content {
  __isContent: __typename
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  publishers {
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  authors {
    __typename
    id
    name
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  ... on Video {
    liveTime
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  ... on Webcast {
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}

fragment Reactions on Content {
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}

fragment ReportLink_Content on Content {
  __isContent: __typename
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  isPremium
  ... on CompanyReport {
    reportUrl
  }
  ... on ThirdPartyCompanyReport {
    reportUrl
  }
  ... on StockExchangeRelease {
    reportUrl
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}

fragment TrendingContent_1jQ2Cn on Query {
  trendingContent(type: ARTICLE) {
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      squareLogoUrl
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    authors {
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    publishers {
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}


hkfoods-announced-the-final-result-of-the-loan-repurchase-tender-offer

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Co. Head of Research

Petri Gostowski

HKFoods operates in the food industry. The group includes several subsidiaries with business activities in the sale, marketing and production of meat products from pork, beef and poultry. The group operates the entire value chain, from slaughtering, cutting to processing and resale of the raw materials. HKFoods has the largest operations in the Nordic market. The head office is located in Turku.

That bottom-up simulation is one option, and you’ve arrived at the same EPS of 0.2 as in OP’s analysis. OP, however, has assumed an improvement in operating profit to a level of 40m, and taxes are rising to 5m (was 4m), so if there were an additional tax benefit of 2-3m on top of the increase in operating profit, the EPS would rise even more. The biggest question mark is the development of margin levels—is there still a chance to improve, and what levels can the company defend in the future now that the major turnaround has been completed? Monitoring the cash position is a good point; I personally believe the company will pay off the 90m bond this year with some combination of a new bond/bank loan and possibly use cash to reduce the debt. Debt amount maybe -15m on an annual basis? And the next cash accumulation for the redemption of the hybrid loan. The dividend and potential extra dividend are approx. 13.5m – whether that is too much relative to cash and debt, each investor should decide for themselves. And regarding the valuation of such a low-growth defensive company. P/E or EV/EBIT are decent metrics for what the company’s maximum value can be at any given time. You can crunch numbers endlessly, but the current share price of 1.82 and this year’s EPS of 0.2 do not include any growth assumption (PVGO); it is even negative. A DCF model can easily be made to show a value of 3 EUR if you assume that margin levels hold. The DCF currently results in a value of 2 EUR only if you dial down the residual margin level significantly. Not very useful to run those numbers for a company like this. In my opinion, the dividend yield % represents a floor for the company’s valuation if the market believes that the dividend level is permanent and perhaps slowly but surely growing. Thus, the floor could be 5% in a “normal situation”, 6% if uncertainty increases, and 4% or below if performance is good for several years in a row and confidence is thus high.

The current year could also be evaluated by taking the 2025 operating profit as a starting level and seeing what could happen in the income statement in 2026. Of course, it’s not certain that the same absolute operating profit will be achieved in 2026, but the future always involves more or less uncertainty. 0.20 euros / share means a net profit of about 18 million euros. The 2025 profit before taxes is 18.7 million, and among the costs following that in 2025, a larger item was the write-down of discontinued operations, which I understand should no longer occur at all. Tax expenses in 2025 were 4.5 million. Regarding 2026, not much is known about taxes other than my own estimate that there will be a credit of the 2.92 million euros I calculated earlier (assuming HK can fully utilize previous losses), but the final amount of tax cannot, of course, be known yet, as the tax credit coming through losses is then deducted from the accrued taxes. So, if the same operating result were achieved in 2026 as in 2025, and financing costs were 2.4 million lower through the renewed hybrid, the taxable income would be 21.1 million. From that, only taxes would then be deducted. Viewed this way, an earnings per share of 0.20 could already be achieved in 2026 if taxes are 3 million or less. But this is, of course, based on assumptions that the business otherwise performs at least as well as in 2025, and then financing costs decrease by those 2.4 million. Regarding financing, I am following the cash position with interest. If the aim is to systematically accumulate it, my interpretation leans heavily toward the idea that they aim to get rid of that 90 million bond to as large an extent as possible with the cash accumulated before redemption or the end of the term. The reality regarding the cash position, however, is likely that it cannot be accumulated every quarter, as I understand that goods must be produced for inventory for the seasons.

A 30c EPS for HK is perhaps a few years away, not now, but by then the track record will either have been established or it won’t. By then, the amount of debt will have decreased; that is also the company’s goal. The company will not distribute the entire profit; instead, a portion of it will be used for debt repayment—this is included in both the forecasts made for the company and in the company’s strategy. Earnings fluctuate cyclically? Here I completely disagree; HK is a defensive company that has now improved its earnings for 12 (?) consecutive quarters in Europe’s worst operating environment, namely the Finnish market, in a country with record unemployment. Of course, the national economy could be even worse, but HK is still a defensive company. Margins are thin and that is reflected in the valuation; P/S is around 0.16. Due to its non-cyclicality and defensive nature, a 5% dividend yield could be quite a relevant valuation. Atria is currently at 4.2%, and for the European industry leader Cranswick, the dividend yield is 2% and the P/E is 20. Its operating profit margin is about 7%. The share price could well stay around two euros in the short term (<1 yr); there are so many different factors involved besides the company’s own performance that it is pointless to predict it. Over a timeframe of a few years, the company has the potential to become a defensive dividend machine.

If EPS is €0.30 Dividend scenario: 50 % payout → €0.15 5 % yield requirement → €3.00 Mathematically perfectly consistent. But… The food industry doesn’t usually get a 5 % dividend yield requirement if:  debt is high margins are thin earnings fluctuate cyclically  In that case, the market may price it with a 6–7 % yield requirement → share price €2.1–2.5. So, €3 requires:  a clear reduction in debt risk stabilization of earnings a credible track record for 2–3 years  The above is a partial quote from an AI analysis. Although HKFoods has been able to improve its performance, a “limit” is reached somewhere. That debt and its servicing are encountered in almost every analysis, including those made by the “machine.” The results definitely need to improve quite a bit so that funds remain for debt repayment while “generous” dividends are paid at the same time. My own guess is that the rise will stall around this two-euro stage. There, HKFoods can develop its operations and pay off debts. And most importantly, react to potential changes in consumer habits.

Analysts’ price targets rose by approx. 10%, but at the same time, recommendations dropped from the buy level. It’s understandable; perhaps a sufficient target for 2026 is for the share price to head towards 2, as that price can be justified by EV/EBIT or P/E metrics and HK should have a discount of about 10% compared to peers. Because of the debt. In the market this year, there will certainly also be a need for profit-taking by those who got in at prices <1 EUR and, on the other hand, by those who are now reaching break-even after a long wilderness period – “never again.” And funds and institutions will likely stay away. However, HK still looks cheap. The discount to peers may disappear as financing costs decrease, first when the bond (Jvk) maturing in 2027 is rolled over or replaced with bank loans, whereby the interest on 90m changes from 10 → 5-6%. This would mean annual savings of at least 3m. And then when the hybrid is paid off in 2028, this will save at least 1m, even if part of it is paid with other debt financing. Financing costs from the aforementioned will drop by 4-6m/year. Looking a few years ahead, when the company’s revenue exceeds 1.1 billion, assuming the operating profit is 4% for the full year, financing costs are 6m, the hybrid is gone, and assuming a corporate tax rate of 18%, the EPS is approx. 30c/share. Half of this is paid out as a dividend, and if, for example, a 5% dividend yield is the valuation basis, then the base case price for the share is 3 EUR. The biggest question mark is the operating profit %; it’s not worth putting the company’s 5% target into the calculator, but it’s good that the target exists to keep eyes firmly on the ball, and one could assume that a 4% level is not satisfactory, making it a viable base case assumption. HK’s investments, or lack thereof, have been criticized; now it seems that since depreciation equals investments, over 30m/year remains for investments. Is that enough? I don’t know. Probably and hopefully, the current management won’t start making any major adventure investments; those have been bitterly experienced by the company. Organic growth is no more than 2-3%/year, but with good operational execution, HK has the potential even with that growth to be what it’s supposed to be – a defensive dividend machine.

Pauli has written a new analysis of HKFoods following the company’s Q4 results  The streak of earnings improvements from recent years continued in Q4, with earnings and cash flow exceeding our forecasts. We see the company as well-positioned to continue improving its performance in the current year as well. Furthermore, the company will consider options for refinancing its current expensive bond, which is likely to significantly lower financing costs starting next year. Despite the recent rise in the share price, we still view the valuation as quite attractive.                   Inderes              HKFoods Q4'25: Hyvä tuloskehitys välittyy vivulla arvostukseen - Inderes    Toimintaympäristö ja oma tekeminen tukevat tuloskasvua vuonna 2026.

Apparently, there was a reading comprehension error regarding that first paragraph. I indeed interpreted it as if that 17.7 million was entirely from losses, and the rest then from deferred depreciation and non-deductible interest expenses, but of course, that’s not how it is. Well, I had to read more of that Note 5, and the last paragraph has a breakdown of the expiration of losses: “Tax losses from Finnish operations expire as follows: 3.0 million euros in 2028, 10.0 million euros in 2029, and 1.6 million euros in 2031.” In total, those would be 14.6 million. But those seem to be indeed deductible losses, meaning they can be used to reduce taxable income. Consequently, the tax benefit would be, for example, with a 20% tax rate: 0.2 * 14.6 million = 2.92 million.

HKFoods

The final result of the tender offer was slightly higher than the preliminary results, but overall the need for a forecast revision remains limited.

Translation: Original comment published in Finnish on 6/11/2024 at 8:57 am EEST.
The final result of the tender offer was slightly higher than the preliminary results, but overall the need for a forecast revision remains limited.
<h2>Majority of noteholders accepted the tender offer</h2>
On Friday, HKFoods reported the preliminary results of the announced 90 MEUR bond repurchase offer, which we commented on <a href="https://www.inderes.se/analyst-comments/hkfoods-a-step-forward-in-extending-the-maturity-of-debts">here</a>. According to the final results announced on Monday, noteholders validly tendered for a total of just over 80.4 MEUR. Thus, the final result of the tender offer slightly exceeded the preliminary result (73.7 MEUR).
Our projections already take into account the issuance of the new bond at an estimated interest rate of 9% (vs. a fixed rate of 5% for the old bond). Against this background, the slightly higher-than-expected outcome of the repurchase offer for the old bond does not put any material downward pressure on the forecast. We will therefore review the possible need to revise our forecasts once the interest rate on the new loan is confirmed.

	2023	24e	25e
Revenue	1,163.2	1,000.5	1,051.0
growth-%	-36.6 %	-14.0 %	5.0 %
EBIT (adj.)	14.9	20.0	24.7
EBIT-% (adj.)	1.3 %	2.0 %	2.4 %
EPS (adj.)	-0.25	-0.05	0.03
Dividend	0.00	0.00	0.00
Dividend %
P/E (adj.)	neg.	neg.	58.5
EV/EBITDA	7.1	6.5	5.3

HKFoods announced the final result of the loan repurchase tender offer

Majority of noteholders accepted the tender offer

Key Estimate Figures2024-06-03

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