The recent battle that drew numerous competing bids for Warnambool Cheese and Butter Factory Co (ASX: WCB) should highlight to investors the inherent strategic value of a number of food sector assets. In light of that takeover battle for Warnambool, a screen though the listed companies which make up the food, beverage and tobacco industry has highlighted a number of companies which could be worth closer investor attention.
Investors, including the high profile fund manager Perpetual Limited (ASX: PPT) have already been attracted to the giant Treasury Wine Estates Ltd (ASX: TWE), however from a value perspective the smaller wine producer Australian Vintage Limited (ASX: AVG) could be a better option. Australian Vintage which owns the McGuigan and Nepenthe wine brands is trading on a historic price-to-earnings (PE) ratio of 8.4 and at a 60% discount to net tangible assets.
While Coca-Cola Amatil Ltd (ASX: CCL) is currently being viewed by the market as having a less appealing growth profile than in the past, there are still growth avenues for the company. The recent move back into beer has great synergies with the company’s current distribution channels, while its bottling license in Indonesia offers long-term growth potential. The stock is trading near its 52-week low and offers investors a 4.5% dividend yield which adds to the appeal.
With a market capitalisation of just under $200 million, Patties Foods Limited (ASX: PFL) will be unfamiliar to many investors. Patties products may be more familiar, with the company producing many well-known food brands including Four’n Twenty pies, Nanna’s frozen desserts and Creative Gourmet frozen berries.
Profits declined in financial year (FY) 2013 with management citing a challenging year and difficult trading conditions. At the company’s Annual General Meeting, management anticipated an improving trend for Patties in FY 2014. Importantly, for income-seeking investors, analyst consensus forecasts (according to Morningstar) are for the dividend to increase from 7.1 cents per share (cps) to 7.4 cps in FY 2014. With the shares trading at $1.39 this implies a forecast fully franked dividend yield of 5.3%.
The strategic appeal of Australia’s food and beverage assets, coupled with expectations that 2014 will see a boost in merger and acquisition activity, could mean now is the prime time for investors to evaluate whether their portfolios are positioned to benefit from these trends.
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Motley Fool contributor Tim McArthur owns shares in Perpetual Ltd and Australian Vintage Ltd.
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