HKFoods as an investment

[sij]

@Makex

Analysts’ price targets rose by approx. 10%, but at the same time, recommendations dropped from the buy level. It’s understandable; perhaps a sufficient target for 2026 is for the share price to move around the 2 mark, as that price can be justified by EV/EBIT or P/E metrics and the fact that HK should have a discount of approx. 10% compared to its peers. Because of the debt. There will certainly also be a need for profit-taking in the market this year by those who got in at prices <1 EUR and, on the other hand, by those who are now breaking even after a long struggle—“never again.” And funds and institutions will likely stay away.

However, HK still looks cheap. The discount to peers could potentially disappear as financing costs decrease, first when the bond (Jvk) maturing in 2027 is rolled over or replaced with bank loans, changing the interest on the 90m from 10 → 5-6%. This would mean annual savings of at least 3m. And when the hybrid is paid off in 2028, this will save at least 1m, even if part of it is paid with other debt financing. Financing costs from the aforementioned will drop by 4-6m/year.

In a few years’ time, when the company’s revenue exceeds 1.1 billion, assuming an operating profit of 4% for the full year, financing costs of 6m, and no hybrid remaining, and assuming a corporate tax rate of 18%, the EPS will be approx. 30c/share. Half of this would be paid out as dividends, and if, for example, a 5% dividend yield is the basis for valuation, then the base case price for the share is 3 EUR. The biggest question mark is the operating profit %, it’s not worth putting the company’s 5% target into the calculator, but it’s good that the target exists so the focus remains strictly on the ball; one could assume that a 4% level wouldn’t be satisfactory, so it could serve as the base case assumption.

HK’s investments, or lack thereof, have been criticized; now it seems that since depreciations are equal to investments, there is just over 30m/year left for investments. Is that enough? I don’t know. Probably and hopefully, current management won’t embark on any major “adventure investments,” as those have been bitterly experienced by the company. Organic growth is no more than 2-3%/year, but with good operational execution, HK has the potential even with that growth to be exactly what it should be—a defensive dividend machine.

The current year could also be evaluated by taking the 2025 operating profit as a starting level and seeing what could happen in the income statement in 2026. Of course, it’s not certain that the same absolute operating profit will be achieved in 2026, but the future always involves more or less uncertainty.

0.20 euros / share means a net profit of about 18 million euros. The 2025 profit before taxes is 18.7 million, and among the costs following that in 2025, a larger item was the write-down of discontinued operations, which I understand should no longer occur at all.

Tax expenses in 2025 were 4.5 million. Regarding 2026, not much is known about taxes other than my own estimate that there will be a credit of the 2.92 million euros I calculated earlier (assuming HK can fully utilize previous losses), but the final amount of tax cannot, of course, be known yet, as the tax credit coming through losses is then deducted from the accrued taxes.

So, if the same operating result were achieved in 2026 as in 2025, and financing costs were 2.4 million lower through the renewed hybrid, the taxable income would be 21.1 million. From that, only taxes would then be deducted. Viewed this way, an earnings per share of 0.20 could already be achieved in 2026 if taxes are 3 million or less. But this is, of course, based on assumptions that the business otherwise performs at least as well as in 2025, and then financing costs decrease by those 2.4 million.

Regarding financing, I am following the cash position with interest. If the aim is to systematically accumulate it, my interpretation leans heavily toward the idea that they aim to get rid of that 90 million bond to as large an extent as possible with the cash accumulated before redemption or the end of the term.

The reality regarding the cash position, however, is likely that it cannot be accumulated every quarter, as I understand that goods must be produced for inventory for the seasons.