 Good day fellow investors. Today I want to share a very very interesting business that I found. It's a food stock so it can be also considered a defensive stock because no matter what happens in the economy around the world this business will probably be very stable and continue growing because as you know we have to eat. Let me give you the summary, let me give you the points that we'll discuss, let me give you the stock what it is and then discuss the fundamentals and everything. Let's start. So the summary, the company's ingredient it produces ingredients in two segments. One is a commoditized production, a low margin starch and sweetener production while the other is specialty ingredients that bring high margins, higher margins and growth. It's important to keep the two separated when analyzing the company. The fundamental summary, the operating cash flow yield is 11 percent which is very good for this market. The company expects to grow earnings at 8 percent per year over the next four years. The price earnings ratio is just 13 for such a growth story, the cash flows are strong, it's a defensive stock and the returns might be substantial for investors over the next few years. What we're going to discuss, the summary of the company, what does it do. Before that I'll give you an introduction about food stocks and how this can be comparable to what another company did, Lamp-Weston Holdings as an example, then we'll go to the business overview, the potential business growth, the current situation with the stock and the business and then the investment outlook. So when it comes to food stocks, if you can find a company that will grow thanks to more food consumption and won't be hit by volatile food prices, you might have a winner. An example is Lamp-Weston Holdings that is a business dealing with potatoes, mostly frozen fries. It's a spin-off from Conagra that did extremely well, since the spin-off in 2016 the stock is up 112 percent. What did they do? Well, they invested in growth, had a nice return on capital, expanded margins and consequently earnings. Revenues were up 20 percent over the last three years, earnings 50 percent, there was margin expansion and the dividend increased too. So they did acquire some smaller players that allow for scale, they expanded their own facilities and this is something to look for when looking for such growth niche food stocks. Now just a quick comment on LW, potato prices have been increasing, so their growth will be a little bit slower in the future, margins will be smaller, the company has been announcing that and therefore the stock price has also a little bit declined and the price earnings ratio is very very, let's say, expanded, I would say. It might continue to grow to scale, they have operations in Australia, it's an interesting stock, but we have here something that has already happened, because when the stock price was at 30 just on the spin-off, if someone could have seen in a few years earnings are going to expand, then the forward price earnings ratio was just 10. Now it's 30, which is a little bit higher, but if we go back to ingredients, the cash flow yield, the price to cash flow is nine something, so if they can, it's already now, if they can expand that then you can expect a similar return, let's see. So ingredients business is pretty simple, they produce ingredients for all the processed food shit we eat, sorry, but they produce starch, sweeteners that are commoditized products which make 70 percent of revenue, but less than 50 percent of profits because specialty ingredients that include special flavors, special chemicals, colors and other stuff that goes into processed foods make it look better, that make it look better and taste better and there are the margins higher, so that makes more than 50 percent of profits. The industry is growing, is getting bigger and if you look at the supermarkets, the aisles of processed food are just getting larger and larger because nobody has the time to cook anymore, you all want it convenient, thus with a lot of starch, you want it sweet, you want it good, you want it fast and you want it already prepared. Just a note here, I'm not going to invest even if it looks like a good business, I'm not going to cover it because I don't like processed food so it would be unnatural for me to invest in it, but if you expect high healthcare bills in the future for yourself because you are on such a highly processed food diet, you might want this stock to pay for all your bills in the future, so stick to it if you don't mind the unhealthiness of the whole business. I'll just show you one example of what's going on in the environment and then I'll go back to business and investment analysis, so a company, their client wanted to reduce costs because it's all about convenience when it comes to processed foods with its spreadable cheese, so they replaced the milk fat, the cheese, so it's not more cheese with starch, so people will think they eat something related to cheese or cheese actually, but in fact they will be eating starch, so this is how the business is doing, trying to be cheaper, cheaper and cheaper, keeping the same texture and taste, but not really what you think you might eat. Unfortunately this market is growing, will continue to grow especially with all the convenience stores around, with people really trying to save on foods because quality food is expensive when compared to these solutions, and this is also ingredients, potential business growth, the company expects to grow sales mostly through their specialty segment, the other part of the business currently making 71% of sales is commoditized and lower margins and they expect it to be stable, but with a smaller smaller percentage of their business over the next four or five years. Even though the growth in sales is expected to be small, margins and earnings should expand by high single digits per, mid and high single digits per year, so 8% expansion in earnings at the price earnings ratio of 13 could be very significant. Their net debt to EBITDA is 1.7 compared to LWs4 allows for more room for acquisitions, scaling and also in this business you can always expect a takeover because a lot of companies are and are continued, have been and will be taken over as there is more consolidation and all the old players that cannot grow try to grow through consolidation, so their return on capital employed has been above 10% so investors could expect similar returns, which is very positive and as we have mentioned in the food sector analysis, there is always potential for mergers and acquisitions, therefore your profit growth outlook is very positive, growing in the specialty high margin ingredients, 8% earnings per share growth, return on capital employed higher than 10%, if they keep this up I think the valuations will expand, earnings will expand and returns to shareholders could be really good. What's the current situation? The things haven't been really that great with the company lately, the stock is down more than 30% over the last year, the reason for the decline is weakness in North America on lower sweetener prices and lower than expected guidance, also because of lower commodity prices, but still they still expect $7 in earnings still despite the lower commodity prices, so still a very good story with a price earnings ratio of 13. However, the focus is on the specialty ingredients part if they continue to grow that if they make an acquisition like they did the national starch one in 2010, where their earnings quickly jumped from $3 to $5 per share, that would be great, but perhaps current market circumstances prevent them from doing that, as even Buffett says valuations are sky high, for acquisitions of course, debt levels are stable around 2 billion. Investment outlook, estimated earnings per share for 2019 is between 6.8 to 7.5, so if I take 7, that's still just a price earnings ratio of 14 for a company that expects to grow earnings at 8%. If they deliver on the promises, we could see earnings per share of around 10 in 2022, and depending on the valuation and future expectations, the price of the stock could be between 120 and 170, I don't think the price earnings ratio will be below 10 on such a growth in earnings expansion if they even increase the dividend. If I take an average price of 150 in 2022, 40 years from now, that leads to a 13% yearly return plus a 2.7% dividend, if there is a takeover there might even be a premium. 2018 they even repurchased 607 million of stocks which leads to a 10% buy back yield, so there is a lot of cash. Cash from operations is 700 million, cash flow yield of 11%, so capital expenditures mostly in growth are 349 million, higher return on capital employed, which means this looks like a good good business in a positive, unfortunate, positive trend with convenient processed foods growing and growing, especially across the world. This is an interesting stock, defensive stocks, you have to eat. It has a strong business model because most of the sweeteners, they simply get the margin that doesn't matter what the prices are, the formulas they make for the specialty ingredients are their own formulas, they have some patents and clients hardly switch from those when they find what sells good. So I'm not going to invest, as I said, I'm not going to cover it, but I wanted to share this with you because of the good cash flow yield, because of the high return on investment capital expansion growth, so a lot of positives and this might be a stock you want to follow. Thank you for watching, looking forward to a comment, subscribe for more such stocks, I am looking at the food sector, I have found a few others that might be interesting, as let's say defensive good returns, double digit returns, stock. Thank you and I'll see you in the next video.