Bottom Line: Good value in a bunch of Fyffes

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THE MARKET breathed a sigh of relief yesterday that Fyffes had not been struck by the dreaded black Sigatoka, pushing the banana company's shares up 5 per cent to 105p.

Along with plunging banana prices in the glutted European market, the disease pushed rival Geest into the red last year, unsettling Fyffes shares.

Like Geest, Fyffes could not avoid the impact on prices of a rush to fill new EU quotas and it admits that November and December were difficult. But prices doubled again in January and Fyffes is as well placed as any to ride the new regime.

Pre-tax profits 11 per cent higher at Ir pounds 31.8m ( pounds 30.9m) confirmed Fyffes' resilience. But investors had their hopes of a profitable exit dashed by Dole's failed bid last year and they will need convincing that the company is anything other than safe and dull.

Two things will persuade them. First, they need a sustained rise in the highly volatile banana price. Last year's pounds 150m sales (a quarter of the group total) produced margins of about 5 per cent, but there is no reason why that should not double to give operating profits of pounds 15m if the new regime settles down as expected.

Then, they need to see Fyffes spend the pounds 90m cash pile that has burnt a hole in the company's pocket since the failed bid for Del Monte. Strip out cash and the operating businesses generate a return on capital employed of about 20 per cent, which is maybe four times what the money can earn in the bank.

If both of these elements move in Fyffes' favour, forecast profits of Ir pounds 35m this year for earnings per share of Ir6.5p might look conservative. On that basis, a prospective p/e of 17 is not demanding and dormant bid prospects give the shares a solid floor. Good value.