Tonkens continued with its strategy of increasing volumes of higher-margin processed vegetables in FY18/19, supporting a 17% y-o-y increase in group revenue. However, as flagged by management in March, the prolonged drought in calendar year 2018 caused a scarcity of vegetables, cutting profit before tax by €0.6m to €0.2m. Management expects that continued drought in calendar year 2019 will result in a similar financial performance for FY19/20.
Group revenues increased by €2.4m year-on-year during FY18/19 to €16.9m as the output of processed produce increased. In addition, while the extended drought had an adverse effect on the yields of most crops, particularly potatoes and onions, this resulted in higher output prices of arable produce. However, total output was unchanged at €17.5m in FY18/19 partly because FY17/18 ‘Other operating income’ included profit on the sale and leaseback of property. Total Profit before tax dropped by €0.6m to €0.2m (in line with management guidance), reflecting the cost of purchasing potatoes and onions from third parties to compensate for low volumes grown within the group. Net debt reduced from €16.6m at end June 2018 to €15.4m, which cut gearing (net debt/equity) from 171% to 163%.
As announced at the end of October, the group’s calendar year 2019 harvest was disappointing because of the continued drought. Moreover, producer prices, including milk, are currently below the previous year’s level. Management expects FY19/20 revenues to be similar to or slightly below FY18/19 levels, depending on the volume of processed vegetables sold. Assuming produce prices are stable, which affects the cost of any third-party vegetables purchased for in-house processing, management expects this to result in group profit similar to FY18/19.
The shares are currently trading on a historical EV/sales multiple that is below the mean for our sample of agricultural producers and an EV/EBITDA multiple that is in line with the peer group mean. We note the current market capitalisation (€7m) is below both net asset value (€9.5m) and the balance sheet value of land and buildings at the end of June 2019 (€13.6m).