I recently bought a stake in Buderim Ginger. This company has...

I recently bought a stake in Buderim Ginger.

This company has not performed well for shareholders, with the shares coming from an adjusted peak of $5.72 in 1993 down to around 50c currently.

It has four divisions — ginger, macadamia nuts, tourism, and a bakery business.

In my view, BUG’s main problem is its bakery business. Why it got into baking in the first place is beyond me. Why would a ginger processor think it could make money by producing meat pies and sausage rolls — competing against big food companies on the one hand and small efficient family-run bakeries on the other?

Hardly surprising then that the bakery acquisition has caused headaches from day one — and is still generating losses.

BUG is also weighed down by a lot of debt (thanks again in no small part to the bakery acquisition). However, with the recent return to overall profitability, for the moment the company doesn’t appear to be in imminent danger of going broke — its banker has just extended the loan for another three years.

I don’t know much about the new CEO who started in April this year. But the previous CEO, Ron O’Grady, who was a one year ‘interim’ appointment, managed to achieve a $6 million turnaround in before tax profit. With a performance like that — he must have made some hard decisions — I was disappointed they didn’t extend his term.

Presumably the board believes the new CEO will perform even better. Time will tell.

I’ve bought into BUG on the basis that I think the ginger and macadamia divisions have significant long term potential. Both are currently profitable, even in the face of the strong $A.

I’m hoping the new CEO will make some hard decisions (for example, sell the bakery division and use the proceeds to pay off debt) and continue the company’s climb out of the mess it’s in.

Failing that, I’m hoping that the company will be taken over — and that existing shareholders will receive a semi-decent offer for their shares. In my view, BUG could be quite an attractive target. Someone just needs to clean all the dead wood out. If they do, I think BUG could really become a winner, and once again start producing wealth for its local region and its owners, rather than slowly wasting away into oblivion.

To achieve this, however, the company will need to be managed with a single-minded focus on rebuilding profitability. Its operations needs to be scaled back to the company’s strategic strengths — the internationally competitive ginger and macadamia divisions.

Over the last year or two, a start has been made. But there’s a huge amount more that needs to be done.