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Dole: debt and competition make offer less tasty

At first glance, Dole’s proposed initial public offering should go down as easily as one of its fruit salads. The company, fresh from a merger with Ireland’s Total Produce earlier this year, is one of the world’s top fruit and vegetable producers. Growth — although not explosive — is steady, thanks to the shift towards healthier eating. Unlike many new issuers of late, it is profitable. 

Yet its plans to sell shares at an equity valuation of as much as $2.1bn may not be to everyone’s taste. Stiff competition, thin margins and high debt could make the offering less appetising.

Even after the IPO, Dole says it will have net debt of $1.1bn — or around 3 times last year’s adjusted ebitda. Irish fruit distributor Fyffes traded on a multiple of less than two times in the run-up to its 2016 acquisition by a subsidiary of Japanese conglomerate Sumitomo, according Capital IQ data. 

Interest expense, at $72m, was nearly on par with Dole’s net income last year.

Still the company will try to drum up investor enthusiasm by fixing their gaze on its growth prospects. The fresh fruits and vegetables market is worth $335bn in 2019 in North America and Europe, according to GlobalData. At Dole, revenue grew nearly 4 per cent last year to $9bn on a pro forma basis.

While Dole’s revenue stream is derived primarily from fresh fruit such as bananas and pineapples, the company also sells vegetables, packaged salads and ready-to-serve products such as fruit juice and fruit cups, which have higher profit margins. The company says it plans to expand its presence in berries and avocado where demand is growing the fastest.

But farming is a business that is subject to many external factors. Changes to immigration laws, crop diseases or bad weather can throw a wrench in the best growth projections. At the same time, large indoor farming companies like AppHarvest and AeroFarms have successfully grabbed investor capital and established themselves on the publicly traded market. Prospective investors have no shortage of companies to choose from.

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