With Improving Cash Flow, Amira Offers Growth at Appealing Price

Amira Nature Foods (NYSE: ANFI  ) , though not a pure play on the healthy and natural food boom, certainly benefits, as the company's main products revolve around specialty rice items, quick meals, and snacks. Even better for investors, the market gives the company a much, much lower earnings multiple than the too-hot-to-touch natural foods stocks. In the meantime, the company posted better-than-expected results on both the top and bottom lines in the recently ended quarter.

Specialty rice is growing in demand, but in the United States it remains a very small part of the rice market. With Amira's in-demand product line, a relatively wide-open market, and appealing valuation, investors may want to take a close look.

Earnings recap
In the company's fiscal second quarter, Amira posted a substantial revenue gain of more than 36% -- pushing the company up above the $100 million mark and above analyst expectations. EBITDA increased even more, up 38% to $14.1 million. As is evident by the difference in top-line sales and EBITDA, margins are slim in this capital-intensive business, but that didn't keep the company from a 90% climb in after-tax income and a bottom line of $0.18 per share -- double the year-ago quarter and one cent above analyst estimates.

In the rice business, materials cost is the biggest expense. In the recent quarter, Amira saw its cost of materials decrease slightly, but it still accounted for nearly 76% of sales. When this is the case, a company needs to compensate in other areas of the business with operating efficiencies and scale. For the latter, the company is making efforts to brand its products and gain market share in nascent markets, such as the U.S. and Western Europe. Amira has little brand presence in the U.S., but is making inroads, with products showing up in Costco and other American outlets.

Looking ahead, the company is sticking to its previously issued guidance. Revenue is set to come in between $480 million and $507 million, with EBITDA from $62 million to $66 million. Beyond increasing demand and impressive results, Amira has valuation appeal, but also some concerns for investors.

Value talk
On the public markets for only 13 months, Amira's stock price has roughly doubled. Still, the company trades under 13 times forward earnings. On an EV/EBITDA basis, the company is trading at 8.49 times this year's high-end estimate, and slightly more than nine times on the low end.

Publicly traded pure-play rice peers are tough to find. But as of January of this year, the average wholesale food manufacturer was trading at more than 14 times forward earnings. Natural and organic food manufacturers trade much higher.

Over the past year, the company has increased its cash horde to more than $46 million. Cash flow, initially, looks extremely attractive, with about $17.5 million in the most recent quarter. However, investors should be aware that the company puts its interest expense underneath the traditional free cash flow line. With the near-$9 million interest expense included, free cash goes down to $8.5 million. Some analysts have expressed concern that the rice business is a commodity and that Amira should not be compared to the natural food brands for valuation comparison. This is a valid concern, and suggests that the company's growth will continually rely on increasing capacity and scale.

Still, Amira is appealing here. The company trades at a discount to the industry at large, cash flows have improved markedly, and the company is in a high-growth industry. Investors interested in the shifting trends of Western food consumption should look closely.

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