NCB warns Fyffes on substantial acquisition

Stockbrokers NCB has warned that unless Fyffes makes a substantial acquisition or buys back some of its shares, it may become an acquisition target itself. Analyst Mr John Conway says that if the Fyffes share price is to break through the 115p-120p level, "more aggressive balance sheet management will be required".

Noting that Fyffes has under-performed the ISEQ Overall Index by 50 per cent over the past five years, the NCB analyst gives Fyffes a "buy" recommendation. That "buy" tag was given when the shares were trading at 106p, but Mr Conway believes that the shares are still a buy at the current level of 109p.

The NCB analyst believes that concerns over the impact of the EU banana regime on Fyffes have been overdone. But on whether the Fyffes management has been maximising the return on equity, the analyst believes that a better use for Fyffes' estimated £86 million cash pile is a share buy-back or a substantial acquisition outside the EU.

Buying back £50 million worth of its shares at current levels would boost the expected 1998 earnings per share by over 16 per cent to 10.9p. And even a buyback at 115p would boost 1998 earnings by 14 per cent.

The NCB analyst is expecting a profits standstill of £46.6 million at Fyffes in the year to the end of last October and earnings per share of 8.9p. This puts Fyffes on a substantial discount to both Dole and Chiquita, its two main competitors in the banana distribution business.

Fyffes - which dealt at 109p yesterday - was only 60 per cent of its current size when Dole made its 115p bid four years ago, a bid that was withdrawn after Fyffes management and major shareholder DCC refused to accept. Dole had made its bid dependent on getting the support of the Fyffes board and chose to walk away when that support was not forthcoming.