Expansion intent greeted cautiously after missed opportunities

Analysis: Fyffes's strong balance sheet may hold the key to the company's future, analysts said yesterday following the release of what one called a "less-than-inspiring" set of results, writes Claire Shoesmith.

Another said the figures could almost be viewed as a profit warning.

The statement that the fruit group plans to double in size over the next five years was welcomed, although treated with a little scepticism given the fact that the company has been in a position financially to make acquisitions in what is a fragmented market for some time.

At the end of 2006, Fyffes reported net funds of almost €80 million, putting it in a better position to make acquisitions than the majority of its counterparts, analysts said.

According to Liam Boggan, head of research at Merrion Capital, the question for Fyffes is whether it can actually achieve its aim.

"You need to take a long-term view on Fyffes's ability to use the strength of its balance sheet to make acquisitions," he said, adding that there was significant potential for synergies in relation to the acquisition of a rival banana group.

Stuart Draper, head of research at Dolmen Stockbrokers, yesterday reduced his rating on the stock to neutral, saying the potential for acquisitions was one of the few positives on the horizon for Fyffes. He, too, was quick to point out, however, that the company had plenty of opportunities to make acquisitions and had not done so. He advised investors to take some profit - before yesterday the stock was up 15 per cent this year.

As far as the results are concerned, the figures were broadly in line with analysts' expectations, though Paul Meade at NCB said the guidance for 2007 - of earnings before interest charges and tax of €20 million - was about 10 per cent below his forecasts.

As a result he lowered his outlook for this year and next by 10 per cent. He now expects earnings per share of five cents for both years, compared to 5.7 cents in 2006.

There was also a perception in certain quarters that the forecast could be viewed as a profit warning, given the fact that banana prices must remain similar to last year for the group to hit its target. So far this year, prices are below last year's.

One thing is for sure. Given the company's exposure to things beyond its control such as exchange rates, raw material prices and volatility in the banana market, Fyffes will have to keep a tight hold on its costs.