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Formerly known as Amsterdam Commodities, Acomo NV is a Dutch group of companies that sources, trades, processes, packages and distributes conventional and organic ingredients for the food and beverage industry. Its range comprises more than 600 products sold in more than 100 countries; end customers are the food producers, wholesalers, retail (schools, grocery stores and local open markets) and foodservice (restaurants and catering).
It’s another “old school” European company, this time not controlled by a single family1, officially formed in 1908 (but some of its operating companies trace their roots back to 1819) when its predecessor, the “Rubber Cultuur Maatschappij Amsterdam”, was listed on the Amsterdam Stock Exchange: until the late 1950s Acomo was among the largest plantation companies in Europe, owning and operating mainly rubber and palm oil plantations in Indonesia. When these were nationalised in the post-colonial era, the existing company was the subject of a reverse takeover by Catz International (a leading trading house in spices and nuts) and the group made a fresh start as an international commodity distributor: to reflect the diversification of the activities that had gradually shifted from mostly rubber to the distribution of food products and ingredients, in the early 2020s the company changed its name to Amsterdam Commodities and later shortened it to Acomo.
Acomo is the holding company of the group: it fully owns the independent subsidiaries and assists them in areas like finance, treasury, auditing, risk management, legal, tax, IT, M&A, HR and other matters. But all operating companies trade under their own name and for their own account: they have their own management teams and their own product portfolio.
These companies contract and purchase the products at the source for physical delivery, store them and provide vendor-managed inventory solutions for clients, thus helping customers reduce uncertainty. Securing the final products is an important part of Acomo’s business, as it is more than just a simple trader on commodity exchanges.
By products, it operates along five business segments (the number into parentheses indicates the year in which that company became part of the group):
Spices and nuts: tropical products such as pepper, nutmeg, coconut, nuts, dried fruits, herbs and cocoa distributed through Catz International (1982), King Nuts & Raaphorst (2010), Delinuts (2017) and Tovano (2000)
Edible seeds: sunflower, poppy and other seeds via Red River Commodities (2010), Red River-Van Eck (2010) and SIGCO Warenhandel (2014)
Tea: Acomo is one of the largest tea traders in the world with a current market share of approximately 10% via the Royal Van Rees Group, active since 1819 and part of the group since 2010
Food ingredients: flavours and additives used as single ingredients or functional blends in sauces, soups, meat and fish preparations and desserts delivered via Snick EuroIngredients (2009)
Organic ingredients: an extensive range of premium, certified organic food products and ingredients via the latest acquisition, Tradin Organic (2020), which offers more than 230 products across a wide range of categories (cocoa, coffee, fruit and vegetables, nuts and dried fruits, oils, premium juice, all 100% certified organic) to customers in Europe, US and Asia.
Acomo also established the Food Ingredients Service Center Europe (FISCe) in the Netherlands to offer the food industry a fully controlled processing environment for a highly effective and homogeneous treatment of low-moisture products.
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Acquisition of Tradin Organic
Autonomous value creation within the operating companies is one of two parallel efforts to achieve long-term sustainable growth; the other is the acquisition of leading companies in conventional and organic niches, a significant part of Acomo’s strategy.
In 2020 it bought Tradin Organic, a global leader in certified organic ingredients, from the American/Canadian firm SunOpta, its biggest acquisition so far which greatly increased revenues from €700 million in 2020 to €1.250 million in 2021.
Acomo paid €270 million, or a total enterprise value including debt of €330 million: with €450 million in pre-acquisition sales, Trading Organic was acquired at a 0.7x EV/sales multiple when Acomo itself was trading at 0.8x. The acquisition was financed with a €150 million term loan (with maturity in 2025) and a €100 million capital raise executed in December 2020 at €19.50, more or less where the shares are trading today.
Over the first year with the group, Trading Organic generated €460 million in revenues and €16 million in operating profits, so the ex-post EV/EBIT acquisition multiple was 21x: definitely not cheap and much higher than the entire group’s EV/EBIT of 13x. The reason was that in 2021 organic ingredients’ operating margin was just 3.5%, while for the other segments in aggregate it was higher than 8%; in H1 2022 Tradin Organic improved to a 4.6% operating margin.
Trading and distributing agri-commodities
Four companies dominate the agri-trading business, the so-called ABCDs: Archer-Daniels Midland, Bunge, Cargill and Louis Dreyfus, with only the first two being publicly listed. The other global trading powerhouses have little to no business in the agri-segment, just Glencore (sugar, cotton, grains and oilseeds), while Trafigura and Vitol are almost completely absent. In Europe there are dozens of other smaller traders/distributors, most of the times specialised in just one or two commodities (for example, cocoa, coffee or fruits). In Asia, the biggest names are Wilmar International, Olam, Noble Group and COFCO.
Cargill is by far the biggest, with US$165 billion in revenues in 2022 and a widespread presence:
“We are the flour in your bread, the wheat in your noodles, the salt on your fries. We are the corn in your tortillas, the chocolate in your dessert, the sweetener in your soft drink. We are the oil in your salad dressing and the beef, pork or chicken you eat for dinner. We are the cotton in your clothing, the backing on your carpet and the fertilizer in your field.” (Cargill 2001 Annual Report)
Both Archer-Daniels Midland and Bunge are not too different from Acomo, as they are also engaged in “procuring, transporting, storing, processing, and merchandising agricultural commodities and products such as oilseeds, corn, wheat, cocoa, and other agricultural commodities, in addition to biodiesel and ethanol”.
An investment in agricultural products is essentially based on a single assumption: a constantly increasing demand due to the growth of world population and per capita wealth in many countries, combined with a very inefficient use of available resources. When people around the world move up into the middle class, one of the first things they do with the increased income is to buy more and better-quality food.
While the prices of agricultural commodities are influenced by a myriad of supply and demand factors (we have seen it recently with the exports of Ukrainian grains), they are not generally affected by macro-economic conditions: food remains a priority for anyone, even during a recession.
However, none of the companies mentioned above has a strong moat: at best, it’s a weak one represented by the capital invested in trucks, warehouses, computers, and every other piece of equipment you need to run an integrated agricultural pipeline. If a new company wants to compete it would have to spend years (and millions) designing the logistical network/shipping routes and building the relationships with farmers and customers that existing players have.
In addition, these companies act as mere "intermediaries", as they purchase, transport, store and transform the agricultural products, but do not physically produce them! While this allows for a lower capital intensity (no land or plantations on the balance sheet), their main objective is to keep prices low, so that they buy cheap, apply a margin and make sufficient profits. They do not have direct exposure to agricultural products: if prices go up, they are generally able to pass inflation on to their final buyers and consumers, but given the nature of the business, margins do not increase.
This is evident in their historical gross margins, which are quite stable (although not guaranteed): pricing power comes mostly from the nature of the long-term contracts with both suppliers and clients, but margins do not expand even under favourable conditions.
Gross margins for agri-traders
[Note: Acomo only publishes semi-annual reports and almost no interim trading updates. I’ve only been able to source its annual reports going back to 2009; I’ve even contacted the IR department but they didn’t provide older reports. Some databases, however, have longer per share time series: where I’ve used them, I’ve taken them at face value without the possibility of double checking or adjusting the numbers.]
Some quick considerations from the charts below:
Economic crises have very limited impact on revenues: sales actually increased slightly in the Covid year and Acomo still managed to generate profits
Growth in EPS is less smooth: there is some volatility (these are commodities, after all) but there have been no blow-ups or even really poor years; management must be given credit for knowing how to run the business2
Throughout the past few years, operating margins have also been pretty robust, and even in 2020 the contraction was very limited and manageable
There are two big “jumps” in the charts above: the most recent one is obviously the consequence of the Tradin Organic acquisition; the other was some years before, between 2009 and 2011. The current Acomo did indeed take shape in those years: before that it was essentially just Catz International (spices and nuts), while in 2010 (in addition to divesting the last remaining participation in rubber plantations) it acquired three companies that allowed not only for an expansion into complementary businesses (tea, seeds), but also geographically (the US) and vertically (it acquired the storage and processing facilities). Acomo more than double its sales in just two years.
“With the acquisition of Van Rees Group (tea), Red River Commodities Group (edible seeds) and King Nuts & Raaphorst (nuts and rice crackers), Acomo has made important steps in the execution of its strategy to grow and diversify the trade and distribution activities of food commodities and ingredients for the food industry. The acquired companies fit seamlessly into Acomo’s culture. Through these acquisitions, Acomo has substantially diversified its activities and has created a platform to further enlarge its profit capacity.” (2010 Annual Report)
But while both earnings and sales increased significantly in 2011, they kind of stalled afterward. Coincidentally, this is also when the stock really started taking off, but since peaking at around €30 in mid-2017, it has mostly drifted sideways.
Return on capital is also not cyclical, but has been trending down since 2011, mostly due to the acquisitions.
The company does have a bit of debt (currently a total of €380 million), only in part explained by the recent acquisition (see the increase in leverage in 2020 in the chart above): Acomo also heavily uses short-term bank overdrafts to finance working capital at the subsidiaries’ level, secured by the parent company holdings.
For this reason, FCF generation is even more lumpy than profits, and hugely impacted by changes in working capital (read: inventories). Managing inventories on behalf of customers is an integral part of the business (which I think allows Acomo to charge more for volumes sold, hence the higher gross margin):
“We help our customers reduce volatility in their end products by providing long-term pricing, meeting their need for price certainty. We also store our customers’ products and provide vendor-managed inventory solutions at multiple destinations. This allows us to ensure quality, secure the proper and timely execution of contracts, reduce price volatility, and holistically manage inventory.”
[…] “Reliance on external funding increased compared to previous year due to higher working capital levels (€133.9 million), driven not only by increasing business volumes and higher market prices, but also by the need for higher inventory levels to address supply chain disruptions.“ (2021 Annual Report)
While in a worst-case scenario inventories could be easily and quickly liquidated, working capital investments will continue to be a drag on free cash flows and debt levels.
Finally, a couple of accounting points are worth mentioning: I wouldn’t call them big red flags, but better to be aware.
For profitability, the company reports RONCE (Return on Net Capital Employed): not only the numerator is EBIT (so it’s pre-tax), but capital employed is rather defined as net operating assets (total assets minus cash, provisions, trade creditors and other liabilities). As such, this metric likely overestimates the actual return generated by the operating businesses: according to my own calculations, ROIC is likely to be around 10%-12% (and lately incremental capital is just 6%), rather than the 20%+ touted by the company.
Similarly, the second point refers to net working capital, which I can’t reconcile with the reported numbers: I’m not sure how Acomo calculates it, I suspect they also includes short-term trade finance debt within payables (for the reasons mentioned above).
Acomo is significantly smaller than the other listed companies, especially in terms of revenues; but at the same time it’s also the most profitable and does not trade at a premium for its higher quality.
Results for the first half of 2022 were good, with revenues up by 15%, and operating profits by 10%. However, the company was not immune from margin pressure: gross margin was stable at 13.5%, but lower than the historical level, and EBITDA margin went down to 7.9% from 8.4% in 2021 (and 8.6% one year earlier).
Cash from operations was again negative, and again mostly because of investments in working capital.
Finally, and very kindly, in its annual reports Acomo provides a lengthy discussion of the main risks, both operating and financial. As highlighted at #14 in the chart, after Tradin Organic the biggest risk is to go for ever larger acquisitions.
So, to summarise
This is a mature, stable company that sells “boring” products: no sexy gizmos and no 20%+ annual growth, but rather GDP-ish; some extra could come from further acquisitions, but the bar moved much higher after Tradin Organic
It does not have a real moat: there is a reason if agri-products are called “commodities”
It’s not super-profitable: ROIC is in the low teens and operating margins are 6% to 7%, similar to other distributors
Not aggressive accounting, but some metrics as they are presented are not exactly conservative
This is a mature, stable company that sells “boring” products that will not go out of fashion even in a recession
Smaller but more profitable than bigger companies: my own interpretation is that Acomo’s specialised lines of products and independent business model allow it to run a much leaner organisation with higher margins and return on capital. Each underlying company operates as a stand-alone entity, with its management team, budget and performance targets, while overhead expenses are centralised at the parent company level (no duplication of costs)
Valuation is attractive: it pays good dividends (dividend yield >5%) and trades at cheap multiples (with 2022e earnings around €1.90 current P/E is 10x)
Working capital investments “mask” the stronger underlying cash flow generation and cash conversion (but they are also part of the business model)
In my opinion, Acomo is a good example of a company with no real observable moat and decent but not spectacular returns on capital that can still be a long-term compounder. Companies with good execution in tough industries, especially if they are aggregators in a fragmented market (there are plenty of potential targets for Acomo in Europe), can still produce really great long-term results.
Even excluding the euphoric 2021, given its consistency Acomo has often traded at much higher multiples than today: P/E of 16x-18x (so a 55% to 75% potential upside) and EV/EBIT of 14x-15x (a 23% to 32% upside).
Mont Cevin, a Luxembourg-based holding company where Acomo’s Non-Executive Director Jan Niessen is Managing Director, holds a 12.3% stake in Acomo. The rest of the float is held by various asset managers, none of which with more than 9%.
Big blow-ups and costly frauds tend to happen in metals and energy trading, see for example recently at Trafigura (“Commodity Trader Trafigura Faces $577 Million Loss After Uncovering Nickel Fraud”) or Mercuria (“Trader Buys $36 Million of Copper and Gets Painted Rocks Instead”). But the agri space has also had its share of frauds and scandals, for example Agritrade International (“Singapore Jails Former CFO 20 Years for Defrauding Over Dozen Banks”)