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Sorbic International

  • BY: Andrew Hore |
  • POSTED: 22/12/2013 |

Food preservatives supplier Sorbic International continues to trade at a significant discount to NAV even after asset write-downs.

The fully diluted NAV equates to 15p a share but this does not include any potential compensation for the attempted investment in inner Mongolia.

In the year to September 2013, revenues declined from 16.8m to 14.6m but the company moved into profit following a strong second half. Costs fell and the sales price for potassium sorbate strengthened. Sales to US-based APAC increased and accounted for 45% of the total.
Net cash was around 200,000 at the end of September 2013 and the figure should continue to increase from operational cash flow. There is 2.7m of convertibles with a conversion price of 9p a share.

China-based Sorbic would like to double production capacity but expansion in Inner Mongolia was stopped. There is a new opportunity to relocate to Linyi. Talks about compensation and the funding of relocation costs continue so the exact timing of the increase in capacity is uncertain. It is hoped that the details can be finalised by mid-2014.

The 6.68m invested in Inner Mongolia has been written off but at least some of this investment should be covered by compensation.
House broker finnCap forecasts flat revenues and profit in 2013-14. A slightly higher tax charge means that earnings per share would be lower. New capacity will help to grow revenues. However, the benefits of the new facility may not show through until 2016.

At 8.13p a share, Sorbic is valued at 4.65m.

John Gunn recently increased his stake in Sorbic to 4.39%.

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