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Your support makes all the difference.S Daniels, a food processor and manufacturer with a handful of small but promising businesses, appears to have the potential to increase returns to shareholders over the next few years, writes Richard Phillips.
It is a far cry from just a couple of years ago. Then, the business was moribund, and had lost most of its investor base after losses going back over many years.
That changed when a management buy-in team, led by Cyril Freedman and Michael Mills, bought a large shareholding in May 1995.
Since then, the business has been revamped, refocused, and revitalised. A couple of weeks ago, it launched its most ambitious deal, funded by a pounds 10m placing. It is paying pounds 2.3m for Globekirk, which blends and sells tea to the catering trade and cash-and-carry outlets.
More significant is the purchase of Eurogran, a Danish firm, for pounds 5.6m. Eurogran makes instant beverage ingredients, mainly for the European vending machine market. The placing will also reduce Daniels' debt.
From a market value of about pounds 2.7m at the time of the MBI, the business is now capitalised at pounds 25m-plus. The company wants to see it expand to a value of over pounds 200m in the future.
The two most recent acquisitions beef up Daniels' instant tea and coffee business. This business has had problems because of rising tea and coffee prices, with some knock-on effect on margins, but the management is comfortable that the effect will be of only limited impact.
When they arrived, the new management's first task was to sell off loss- making companies. Several businesses were disposed of, raising pounds 2.6m. Over the same period, three businesses have been brought into the fold.
Alongside tea and coffee, the other branch of the business is fresh fruit and fruit juices. Daniels seems to have acquired a little gem in Johnson's Fresh Products, a freshly squeezed orange juice producer it bought last year for pounds 6.6m.
Johnson's, based in London, sells mainly within the M25, but is expanding the radius of its operations. With growth averaging 25 per cent a year, and net margins of 20 per cent, Johnson's has plenty of potential.
With the latest acquisitions, profits could hit pounds 2m this year, rising to over pounds 4m in 1998. If so, the shares - after dilution - could be trading on around 13 times earnings for this year on Friday's closing price of 38.5p.
Food processing is currently one of the most out-of-favour sectors. However, Daniels represents a good contrarian play in a sector where the problems of low-margin, commodity-style businesses have left few fans.
Some questions remain. There are several large shareholdings, including the Daniels family, and after the MBI, there was a flurry of speculative buying. Thinly traded, the shares are prone to sudden fluctuations. With that in mind, the shares offer value and doubtless some thrills and spills.
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