Interesting pitch. Do you have any idea how many different items they do distribute ? For distrubutors, my rule of thumb is that the more items and the more customers, the better thfme business. One customer with 50% is not optimal..
Congrats on an effective write-up, and I'm intrigued to take a further look.
just a few surface level questions/pushback.
1. Normalized 10% ebitda margin seems fat nowadays. in the last 2-3Y, specialty food providers are increasingly inclined to work directly with large retails (e.g. Kroger iirc), thus put margin pressure to distributors. Is Y16/17 ~10% margin still a good indicator for its earning power?
2. projected high ebitda -> cash flow due to non material CapEx: what moat does the Co has to keep the margin and maintain/grow sales while no substantial CapEx is expected?
3. by looking at 2Q3Q YoY data (only), the turnaround story so far is cutting money losing biz, improving op margin story. right? what give you confidence that the expanding good biz story will pan out? (not sure if that's similar mgt skill sets)
Hi Sebastian - Thanks so much for the write up. Ultimately, I found myself coming to the conclusion after my own research that I would just need to get comfortable with the reliance on US Food. My view is that new management is quality and would not allow that relationship to deteriorate. I believe that the company, if it were to operate as an AVERAGE distributor would command a much higher multiple, not asking them to be the new blue chip of efficiency. And I've found through another investment in OSCR that strong management moving from high quality large companies, to smaller ventures, is not for fun, but rather they see the value that others are missing. That paid off with OSCR, and hopefully it will here as well. Thanks again.
I'm curious about how you buy their capital-light story. It seems their current solution is serving the pan-Chicago area with their own logistics, while serving nationwide customers on US Food's network, so they don't have to do much incremental capex. But as they grow their business further, as they hinted the capacity of existing warehouse does have hampered the growth of the B2B business, would they achieve it by leveraging broadliners? Maybe that will make them even more rely on a couple of key customers. CHEF seems to have built their own logistics, that model makes more sense IMO.
I think you missed the outstanding notes as well as leases for your EV calc. Really like the point with the strong management and incentivization. However, Chefs Warehouse has EBITDA margins of about 6% and is of significantly bigger scale. Therefore, I question the ability of IVFH to generate margins beyond 10%. We will see where this management can take us but historic growth has also been considerably lower compared to Chefs', which somewhat justifies the multiple.
Very interesting write up. Thank you for it. I have to look deeper. At first glance, I think that the margin will influence the valuation of this company the most. When I look at CHEF, they have EBIT margins of 3% to 4%, the average of this segment is around 4%. Do IVFH have any advantage over the competition that they should have bigger margins?
very interesting idea here @sebastian. thanks for sharing. ive got enough to dig in for myself which is the type of idea generation that is valuable imo. cheers!
Fantastic read! I really like the dynamics of having two “income” sources, one of them sort of hiding the more profitable one by being, well terrible. However, it does make me wonder how anyone manages to find this given you’d have to spend quite some time researching a relatively “uninteresting” company. Really impressive in any case!
the 16% drop in foodservices sales is concerning
Interesting pitch. Do you have any idea how many different items they do distribute ? For distrubutors, my rule of thumb is that the more items and the more customers, the better thfme business. One customer with 50% is not optimal..
This is such a great write up! the incentive plan is exactly what I like to look for, I’ll definitely have to dive deeper into this one.
Congrats on an effective write-up, and I'm intrigued to take a further look.
just a few surface level questions/pushback.
1. Normalized 10% ebitda margin seems fat nowadays. in the last 2-3Y, specialty food providers are increasingly inclined to work directly with large retails (e.g. Kroger iirc), thus put margin pressure to distributors. Is Y16/17 ~10% margin still a good indicator for its earning power?
2. projected high ebitda -> cash flow due to non material CapEx: what moat does the Co has to keep the margin and maintain/grow sales while no substantial CapEx is expected?
3. by looking at 2Q3Q YoY data (only), the turnaround story so far is cutting money losing biz, improving op margin story. right? what give you confidence that the expanding good biz story will pan out? (not sure if that's similar mgt skill sets)
thanks,
Siyu LI
Hi Sebastian - Thanks so much for the write up. Ultimately, I found myself coming to the conclusion after my own research that I would just need to get comfortable with the reliance on US Food. My view is that new management is quality and would not allow that relationship to deteriorate. I believe that the company, if it were to operate as an AVERAGE distributor would command a much higher multiple, not asking them to be the new blue chip of efficiency. And I've found through another investment in OSCR that strong management moving from high quality large companies, to smaller ventures, is not for fun, but rather they see the value that others are missing. That paid off with OSCR, and hopefully it will here as well. Thanks again.
Thank you for the great idea!
I'm curious about how you buy their capital-light story. It seems their current solution is serving the pan-Chicago area with their own logistics, while serving nationwide customers on US Food's network, so they don't have to do much incremental capex. But as they grow their business further, as they hinted the capacity of existing warehouse does have hampered the growth of the B2B business, would they achieve it by leveraging broadliners? Maybe that will make them even more rely on a couple of key customers. CHEF seems to have built their own logistics, that model makes more sense IMO.
Thanks for the nice write-up!
I think you missed the outstanding notes as well as leases for your EV calc. Really like the point with the strong management and incentivization. However, Chefs Warehouse has EBITDA margins of about 6% and is of significantly bigger scale. Therefore, I question the ability of IVFH to generate margins beyond 10%. We will see where this management can take us but historic growth has also been considerably lower compared to Chefs', which somewhat justifies the multiple.
Very interesting write up. Thank you for it. I have to look deeper. At first glance, I think that the margin will influence the valuation of this company the most. When I look at CHEF, they have EBIT margins of 3% to 4%, the average of this segment is around 4%. Do IVFH have any advantage over the competition that they should have bigger margins?
very interesting idea here @sebastian. thanks for sharing. ive got enough to dig in for myself which is the type of idea generation that is valuable imo. cheers!
What about Chefs Warehouse? Are they a direct competitor?
Interesting business, great write-up, thanks.
Fantastic read! I really like the dynamics of having two “income” sources, one of them sort of hiding the more profitable one by being, well terrible. However, it does make me wonder how anyone manages to find this given you’d have to spend quite some time researching a relatively “uninteresting” company. Really impressive in any case!
Loved the shift to the asset light business hidden by the loss making one. Also the incentives and new management looks great!
Appreciate the idea and will definitely add to my to-research list!