This thread can be used as a way for you to ‘pitch’ why you think TFC is a great investment, or why you think it isn’t. As you probably know, I'm a TFC bull.
A quick background on TFC for any new readers. TFC’s ‘bread and butter’ is growing and managing Indian Sandalwood plantations. They sell all parts of the Indian Sandalwood tree, as it has many applications including:
Heartwood – Furniture, Jewellery etc.
Pure Oil – pharmaceutical, fragrances, cosmetics etc.
Fractions- perfumes, attars
Resins – incense
Wood Powder – cosmetics, traditional medicine
Spent Charge – incense
Their relatively recent acquisitions of Santalis and ViroXis have extended their line of business, or as they like to call it, soil to oil to shelf.
Now, reasons why I think TFC is a standout company:
Management
Management of TFC have continued to impress me. To summarise:
Increased the plantation ownership (and thus earnings) quickly, but not too quickly, showing prudent risk management and a recognition that they don’t need to implement ‘fast growth’ strategies given the ridiculously high barriers to entry and their stranglehold in the marketplace.
Diversification to improve revenues and stability in earnings – their soil to oil to shelf strategy has been effective and they’ve reaped many synergies. Their added research into the pharmaceutical benefits of Indian Sandalwood could provide further income in the future, but would merely be ‘icing on the cake’.
Skin in the game – While not technically a merit of management, it is important to me that management are also shareholders.
Extensive experience
Competitive Advantage (Moat)
As I’ve stated in a previous thread, I believe TFC offers one of the widest moats on the ASX.
1. Trees take approximately 15 years of growth before being commercially viable. Makes it hard for competitors to capture market. Replicating TFS' current market position would require approximately 17 years of investment.
2. TFS's hosting techniques to limit tree mortality come from extensive experience and intellectual property. Hard to replicate.
3. It is difficult to access commercial quantities of Indian sandalwood seed to establish commercial plantations.
4. High sovereign risks are evident in most acceptable climatic locations for Indian sandalwood growth.
Also, while not part of their moat yet, their diversification into other lines of business such as their pharmaceutical brands have potential to widen their moat even further
Another also, and something that shouldn’t go overlooked, is that TFC are the only company who produces pharmaceutical-grade Indian Sansalwood.
Certainty in Earnings and Growth
Now nothing in life is certain, and this hold especially true for a company like TFC. It is somewhat reassuring to know though that they’ve pre-sold their entire 2016 and 2017 harvests at approximately US$4,500 per kg of oil. This has sparked a desire to acquire plantations at a faster rate to meet future demand for the product. Not only that, but their harvests are increasing at a rapid rate (ten-fold from 2014-2015).
Price
No matter how great a company, it doesn’t matter if you pay too much for it. TFC is, in my opinion, ludicrously cheap. Trading at an extremely low multiple of earnings, it represent the largest holding in my portfolio. I’m not going to crunch the numbers for this post would never agree with someone purchasing a stock without crunching the numbers themselves.
All in all, I think TFC is well positioned and, assuming nothing changes my sentiment, will remain in my portfolio for many years to come.
TFC Price at posting:
$1.49 Sentiment: Buy Disclosure: Held
