IOOF Limited (ASX: IFL) is one Australia's largest financial services companies, it offers a range of products and services including financial advice, superannuation, investment management and trustee services.
The business makes long-term investment decisions for its clients, so any investment it makes is worth considering to see if it would be a good long-term investment for our portfolios as well.
IOOF recently announced that it had acquired 5% of the voting power of Oliver's Real Food Ltd (ASX: OLI).
Oliver's is seeking to shake up the fast food industry by serving food that is fresh, natural and organic. It aims to provide a healthy alternative on the roads and claims it might be the world's first 'certified organic fast food chain'.
IOOF became a substantial shareholder two days after Oliver's had released its half-year result for the six months to 31 December 2017.
In that result Oliver's revealed a number of pleasing things. Revenue increased by 93% to $17.6 million, the gross margin increased to 75.6% from 65.7%, there was same store sales growth of 5.7%, operating activities cash flow was $1.8 million compared to a negative $0.1 million last year and earnings before interest, tax, depreciation and amortisation (EBITDA) was $1 million compared to a $0.7 million loss last year.
Overall, this seemed like a solid result and I can see why IOOF would be interested when the share price fell 8.3% on the day.
Oliver's management gave guidance that FY18 EBITDA would hit the prospectus forecast of $4.767 million and that revenue would be within 5% of the forecast $42 million.
Foolish takeaway
If the Oliver's offering continues to resonate with customers then it could steadily grow into a sizeable small cap. However, revenue and profit will need to grow through increased and returning customers, it can't just be from price increases. I think Oliver's has the potential to be an exciting stock, as long as same store sales continue to grow and price doesn't become an issue for people.
