Comparisons
Beston seems to be a hybrid between a milk business and a diversified food
business.
Compared with MG, Fonterra ,Bega,Warrnambool and Saputo for milk
Compared with Bellamy, A2 Milk Co, Freedom Foods and Webster for
diversified food businesses.
Profitability
Believe Beston EBIT to Sales 14 percent versus 2 to 9 % for Milk and 4 to 22%
for Food
Believe Beston Return on Assets 9 percent versus 3 to 18% for milk and 5
to 16% for food.
Believe Beston Paying Goodwill about 20 percent of purchase price versus 16 to
70 % for milk and 72 to 78 % for Food
Believe Beston Equity at 97 percent of
assets versus 42 to 59 % for milk and 44 to 81% for food.
Summary
Paying a low amount of goodwill to get into Beston relative to
industry
Beston profitability reasonable
Beston has high equity and
capacity to borrow to expand further.
Execution Risk for Beston
Positives
1. China FTA from August means that up to 15 % duties will be dropped
to zero over the next four years. Good for Beston exports to China
2. The
food industry is a hot topic at the moment. You can see the food comparison
companies I have looked at and their share prices have all gone ballistic
over the last three years.
Negatives
1. Major, major, major execution risk. Everything has been bought and will
it work.
2. I do not think the market will like the annual investment
management fee of 1.4% . The market over time has never liked
arrangements like this
Conclusion
If the market gets over the management fee , likes the clever way they
have structured it and reckons execution risk is manageable then this
stock has the capacity to fly relative to comparison companies used above
If the market gets concerned about the above issues then it will be a
problem.
