Four years ago we wrote a column on our oldest holding, which had been in the portfolio since 1993, with the headline: We're waiting to put High Liner Foods Inc. (HLF-TSX) into dry dock. At one point, the position was trolled, waiting for a fish to bite and take our shares. Unfortunately, it didn't happen.
The operational numbers are now looking pretty dishy for the seafood company. In the most recent quarter, sales were up 4.7 per cent year over year to $81.3-million. Earnings were $3-million, or 26 cents a share, while inventories were smartly reduced by 29 per cent. This was accompanied by a drop in bank debt from more than $33-million to less than $15-million.
One aspect of this enterprise that is laughable, however, is its share buyback plan. When in force last year, the company had the option to acquire 510,000 shares. How many did they purchase? Three thousand. Holy Hannah, if you're not going to use the reel, buddy, you might as well just put it in the shed.
The company has an unexpected opportunity right now. The U.S. Food and Drug Administration stopped seafood imports from China this month unless the exporters can show that the goods comply with American safety standards. Given that the U.S. imports about 18 per cent of its seafood from China, this could leave a major gap in consumption of more than one billion pounds. One would think that High Liner can help fill the vacuum.
The momentum is already there, as sales to our southern neighbours were up by 18 per cent last year, compared with a year earlier.
On the domestic front, after fighting against consolidation in the industry for decades, those shell shuckers in the Newfoundland and Labrador government have approved a preliminary agreement for the sale and breakup of FPI Ltd. (FPL-TSX). Some of those assets will likely come High Liner's way.
The deal is not done yet and, given the governmental involvement, it will probably take longer.
Other investors who bought High Liner long ago, as we did, have probably sold and cast their lines in other waters that appeared to have greater potential.
It would be difficult for us to dispute that they made the right move. Given that the average holding period for a Contra the Heard stock is 3½ years, this position certainly does not fit our modus operandi.
Nevertheless, given the tangible improvements in High Liner's business, it does not make sense to simply dump our shares. Rather, our gut feeling suggests that patience will win the day. In the meantime, the dividend yield of about 2 per cent makes this tranquil outing more worthwhile.
Long-standing chief executive officer Henry Demone suggests that more acquisitions are on the High Liner agenda. Perhaps size will catch investors' eyes and, if so, trading volume could jump like a flying fish, causing a breakout on the stock price.
Given that the stock currently dances around the $10 mark - it has been 16 years since the stock traded at $29 - High Liner does appear to have some catching up to do.
This column first appeared on GlobeinvestorGOLD.com.
High Liner Foods
SHARE PRICE, DAILY CLOSE, (HLF-TSX)
Friday's close
$10.05, unchanged
SOURCE: THOMSON DATASTREAM