Norwegian foods manufacturer and Scandanavian conglomerate Orkla (OSL:ORK, Financial) has had another fantastic quarter. Orkla has been selling off shares in industrial divisions and reinvesting proceeds into European food companies.
For the most recent quarter, adjusted EBIT grew by 26% to NOK996 million ($117 million). (It takes 8.52 krone to buy one dollar.) Operating revenues grew by 22% to NOK9.433 billion ($1.1 billion). 1.3 billion krone ($153 million) worth of shares and real estate have been liquidated to be invested into more food companies. Orkla’s acquisition of Hame has made the company one of the largest players in food in Czech Republic and Cederroth in cleaning supplies.
Orkla is in the process of divesting many divisions and focusing on food and consumer products. The company owns part of Hydro, a power company, Jotun, paint, and Sapa, extruded aluminum products.
The dividend is 2.50 krone and the dividend yield 3.2%. Not bad for where interest rates are. If history repeats itself, the dividend should be increased in the next few years. That should portend good things for the stock price.
The balance sheet is robust with NOK10.5 billion ($1.23 billion) in PP&E, NOK13 billion ($1.53 billion) in joint ventures, NOK5.6 billion ($657 million) in accounts receivable, NOK1.4 billion ($164 million) in financial assets, and NOK721 million ($84 million) in cash. This is to NOK8.722 billion ($1 billion) in debt and NOK3.9 billion ($458 million) in accounts payable.
There are about 1 billion shares and the market cap is NOK77 billion ($9 billion). Major Guru shareholders include First Eagle and FPA, though FPA has greatly reduced its exposure. The shares have done well in the krone but unfortunately, the krone has weakened against the dollar with the fall in oil prices. Norway is a major player in energy. Just a few years ago, it only took 6 krone to buy one dollar. That is quite a drop.
We own shares but are probably only up about 15% including dividends. If not for the weak krone, we would be up a lot more. We continue to hold shares but are not buying for new clients. Eventually, management will probably sell off paint, power and aluminum, and completely concentrate on food. Food stocks almost always trade at high multiples.
Start a free 7-day trial of Premium Membership to GuruFocus.
