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Capilano Honey Ltd (ASX:CZZ) shares rocket on results and takeover offer

In morning trade the Capilano Honey Ltd (ASX: CZZ) share price has raced higher after announcing its preliminary full-year results and the receipt of a takeover offer.

At the time of writing the honey producer’s shares are up 27% to $19.85.

What happened in FY 2018?

For the 12 months ended June 30, Capilano Honey delivered revenue of $138.5 million and net profit after tax of $9.8 million This was an increase of 4% and a decline of 4.9% on the prior corresponding period.

However, it is worth noting that if you exclude the capital gain on an asset sale in FY 2017, net profit after tax would be almost 19% higher year-on-year.

Management advised that the strong performance was driven by further gains in revenue and volume in both domestic and export retail sales.

On the bottom line earnings per share came in at $1.04. This allowed management to declare a 42 cents per share dividend, up from 40 cents in FY 2017.

Capilano Honey finished the period with positive operating cash flow of $1.29 million, after the impact of further increases to its honey inventory of $7.1 million. Net debt rose from $7.8 million to $11.4 million to fund higher inventory levels.

Takeover offer.

While this solid result might have been enough to push its shares higher today, they were given an additional boost after confirming the receipt of a takeover offer from Bravo HoldCo, an entity owned by Wattle Hill RHC Fund 11 and ROC Capital.

Bravo HoldCo has offered $20.06 per share cash for 100% of the share capital of Capilano, which represents a 28% premium to the last close price.

Management appears to be pleased with the offer and has entered into a scheme of arrangement with the consortium.

It will unanimously recommend the offer to Capilano shareholders in the absence of a superior offer emerging and subject to the independent expert concluding that the offer is fair and reasonable and in the best interests of Capilano shareholders.

Shareholders will also have the option of a scrip alternative which provides them with the potential to participate in the future of Capilano through an all-scrip 1:1 offer.

Major shareholder Wroxby Pty Ltd, which owns approximately 20% of the company, has stated its intention to vote in favour of the scheme and plans to choose the scrip option rather than the cash consideration.

Which is good news for shareholders as the offer is subject to 15% of shareholders choosing the scrip option.

Should you invest?

Unfortunately, I think the boat has been missed on this one now following this takeover offer. As a result, I would focus on other growing companies in the industry such as A2 Milk Company Ltd (ASX: A2M) and Freedom Foods Group Ltd (ASX: FNP).

Alternatively, these fast-growing mid cap stars could be even better options for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Capilano Honey Limited. The Motley Fool Australia has recommended Freedom Foods Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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