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Feb 26, 2024

Acomo: A Dividend Yield Of Almost 6% With Nuts And Spices (OTCMKTS:ACNFF)

fcafotodigital/E+ via Getty Images Back in April, I wrote a follow-up article on Acomo (OTCPK:ACNFF), a Netherlands-based company focusing on the sourcing, trading, processing, and distribution of

fcafotodigital/E+ via Getty Images

Back in April, I wrote a follow-up article on Acomo (OTCPK:ACNFF), a Netherlands-based company focusing on the sourcing, trading, processing, and distribution of food products. Pretty much a 'modern' version of the East India Company. I argued the cash flows were strong but it was taking the company more time to digest a large acquisition. But as shareholders were treated to a generous dividend, I thought it was a fair compensation to wait. Acomo has now released its H1 2023 results and I was hoping to see an acceleration of the free cash flow result despite the increasing interest rates on the financial markets.

Yahoo Finance

Acomo's main listing is on Euronext Amsterdam, where it is trading with ACOMO as its ticker symbol. The average daily volume in Amsterdam is approximately 12,000 shares per day for a monetary value of about 250,000 EUR per day, and that makes the Dutch listing clearly superior in terms of volume. The company ended 2022 with 29.6M shares outstanding. This results in a market capitalization of almost 610M EUR based on the current share price of approximately 20.5 EUR per share (which is about 7% lower than when my previous article was published.

This article is meant as an update on two previously published articles, which you can read here and here. Those articles also provide background information on the company and its recent large acquisition, which caused the net debt to increase.

It wasn't an easy semester for Acomo and the company highlighted the 'varying market conditions' it experienced. The company put in a strong performance in the spices and nuts, seeds and food solution divisions but was hurting in the organic ingredients segment. Acomo pointed to a global destocking phase to justify the weak performance of the organic division. Additionally, the company was hurt by the cocoa market 'due to a mismatch between physical sales and the futures position' and has now taken the appropriate steps to tighten up the correlation between contracts and sales.

Acomo Investor Relations

As you can see above, Acomo reported a 20% reduction in the EBITDA but fortunately the adjusted EBITDA was higher, resulting a 10% hit to the adjusted EBITDA which came in just below 50M EUR. This obviously didn't mean the first semester was a total disaster. As you can see below, the company's operating income of 36.4M EUR was still hit by the higher interest expenses, but all things considered, the net income of 22.2M EUR (representing an EPS of 0.75 EUR) was very reasonable. Especially taking into account some of the non-recurring elements which had a negative impact of approximately 10-15% on the EPS which would otherwise have come in closer to 0.85 EUR per share.

Acomo Investor Relations

Sure, that net income is lower than in the first half of 2022, and I do blame the higher interest expenses for that. Acomo's large acquisition was likely a good move, but it remains important to reduce the gross debt as fast as possible as the average cost of debt in the first semester came in at close to 6%.

That's also why I'm keeping close tabs on Acomo's working capital generation. The company reported a total operating cash flow of 54.2M EUR but this includes a 22.5M EUR contribution from the working capital releases. We should however still deduct the 2.3M EUR in lease payments.

Acomo Investor Relations

This means the adjusted operating cash flow was approximately 29.4M EUR and after deducting the 3.5M EUR in capex, the underlying free cash flow result was almost 26M EUR or about 87 cents per share. That's important because 1) it confirms the sustaining capex is lower than the depreciation and amortization expenses and 2) it definitely improves Acomo's balance sheet.

As of the end of June, Acomo had about 2M EUR in cash and about 260M EUR in gross debt for a net debt level of 258M EUR. Based on the H1 adjusted EBITDA and excluding the lease payments (and lease liabilities), this represents a multiple of approximately 2.75 times the adjusted EBITDA.

The balance sheet does not worry me. Acomo traditionally has a high inventory level (which currently stands at 328M EUR) and the total net working capital (defined as current assets minus current liabilities) is 275M EUR.

Acomo Investor Relations

Acomo Investor Relations

In fact, as you can see above, the total amount of current assets exceeds the total amount of liabilities (including financial debt and lease liabilities), so I'm not worried at all.

Acomo has declared an interim dividend of 0.40 EUR per share, this will cost the company just under 12M EUR and after making a 23M EUR dividend payment in the first half of the year, it is clear the dividend remains very well covered.

While that's great news, I would like to see a better focus on debt reduction though as that will provide an additional boost to the free cash flow result. For every 10M EUR in debt it repays, the free cash flow result will increase by almost 2 cents per share per year. So it's definitely worth pursuing.

In any case, I think Acomo will be able to keep the dividend stable at 1.20 EUR per share which would result in a dividend yield of almost 6%. That being said, and as mentioned above, I wouldn't mind a lower dividend on the condition the retained cash will be used to reduce the total debt.

I still have no position in Acomo, but I am getting increasingly interested in the stock as Acomo is currently trading at a 8-9% free cash flow yield despite the sharp increase in the interest expenses. Additionally, I think the full-year dividend will continue to exceed 1 EUR per share and if Acomo would keep it unchanged compared to last year, the 1.20 EUR annual dividend would represent a dividend yield of almost 6% (subject to the 15% Dutch dividend withholding tax).

And while the high gross debt and net debt level appears frightening, let's not forget Acomo has in excess of 300M EUR in inventory and its current assets are higher than the total (current + non-current) liabilities combined. This makes Acomo very attractive in my books.

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