The placing of white soft cheese and whipping cream under price controls will cut tens or even hundreds of millions of shekels from the value of food company Tnuva Food Industries Ltd., according to capital market sources who spoke to "Globes" today.
In the words of one of them: "Every shekel off profits has a an effect nine or ten times greater on the valuation. If Tnuva's profits are cut by tens of millions of shekels, then the valuation will be cut by hundreds of millions; if the damage to profit amounts to only a few million shekels, then the impact on the valuation will be in the tens of millions of shekels." The sources do not believe that the latest developments will frustrate the expected flotation, but say they could delay it.
"Everything of this kind leads to delay in the flotation, and Apax is very concerned about the delay. This is something that hasn't happened here for twenty years, and the implications have to be clarified, including what it means for Tnuva's other products, and whether more products will be placed under price controls in the future. Apax is negotiating with the Chinese, and it will have to explain to them the significance of what has happened.
"Apax has two big companies it must sell one way or another: Tnuva, and Psagot. This is both because of the legal requirement to separate financial and non-financial assets, and because of the fact that the fund has a time limit, and it must realize its portfolio. This is an investment fund, and time plays a role. Apax's success in Israel has been Tnuva. Psagot isn't anything great."
The negative impact of the newly introduced price controls on Tnuva's results could be much larger because of its need to adjust prices of similar products that have not had price controls imposed on them, such as 3% fat white cheese and flavored white cheeses. Tnuva is aware that failure to reduce the prices of these products will lead to consumers drifting away from them towards the controlled products, and so inevitably to an adverse effect on their sales.
According to StoreNext, between January and November 2012, Tnuva had 57.6% of soft cheese sales and 83% of whipping cream sales in financial terms.
Apax, which owns 56% of Tnuva, planned to float the company on the Tel Aviv Stock Exchange in the first quarter of 2014 at a valuation of NIS 8 billion.
At the same time, Apax is continuing negotiations to sell its stake in Tnuva to Chinese company Bright Food. As far as is known, the negotiations are making slow progress, and in this context too capital sources estimate that the introduction of price controls will be a stumbling block.
In the third quarter of 2013, Tnuva had sales of NIS 1.78 billion, up 2% in comparison with the corresponding quarter of 2012, and a net profit of NIS 79 million, down 49% in comparison with the corresponding quarter, mainly because of adjustments for the rise in companies tax this month from 25% to 26.5%. Net profit excluding items such as real estate sales, and without the tax adjustment, was NIS 105 million, compared with NIS 92 million in the corresponding quarter.
Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2014
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