Article on BFC written yesterday:
Beston Global Food Company Limited (BFC 50c) is an Australia-based company which invests in a portfolio of food and beverage businesses and related assets in Australia and across the globe.
BFC invests in family or privately owned entities and its portfolio may also include investments in listed companies and related securities. The investments of the Company are focused in four industry segments: dairy (milk, yoghurts and cheese); seafood (lobster, oyster, water and sea water fish); health food (functional food and nutritional supplements, naturally based food ingredients and organic beverages), and meat (processed meat and ready-to-eat meat). Beston Pacific Asset Management Pty Ltd acts as the investment manager of the Company.
Shares listed last August after the company raised $130m at 35c per share, and traded as low as 30c before recovering.
The company aims to establish a
vertically integrated food supplier, marketing branded export products. The Company will be operated by an external asset manager, Beston Pacific Asset Management (BPAM), to which Beston pays a management fee of 1.2%, calculated biannually and paid monthly. A performance fee is also payable.
Beston Global Food Company Limited says its aim is to provide natural and verifiably safe food and beverages to global markets so that
consumers can make healthy choices. It will do this
by owning the raw materials, taking advantage of
technology in the production process and
controlling distribution.
PRODUCTS - Beston Global Foods (BFC) started with a small portfolio consisting of
- Dairy - 26.5% indirect interest in Paris Creek, one of Australia’s premier producers of organic dairy products, including milk, cheese and yoghurt;
- Seafood - 36% indirect interest in Ferguson Australia – which harvests, processes, packages and distributes live and packaged seafood (primarily Southern Rock Lobster) both domestically and into Asia.
- Dairy - The Wellington Dairy Farm in Wellington, South Australia, which will be used to increase the supply of raw milk to Paris Creek.
- Dairy - The Jervois and Murray Bridge assets of United Dairy Power Group (UDP) from receivers for $4.5 million.
There were also plans to acquire further businesses and assets manufacturing and marketing food and beverage commodities. These (some listed below) are under contract, or have been acquired since listing (See RECENT PERFORMANCE).
DISTRIBUTION
BFC has established a wholly-owned subsidiary in China via the acquisition of the Dalian Australian Food Expo Company (DFEC). BGFC (China) consolidates some 7,000 distribution outlets across China.
BFC also has a customer relationship with Yihaodian, a leading on-line supermarket in China and 51% owned by Walmart. Yihaodian has grown quickly to become China's biggest specialist food e-store.
BGFC has been invited to be the preferred supplier to Dashang, is a leading retailer in China with 200 retail stores in 150 cities, for all Australian food and beverages. BGFC will create and stock a Beston Pure Foods section in each of the upmarket stores (70 different cities).
More recently, on 18 January BFC announced it had entered into a joint venture with the Sunwah Group ("Sunwah") in Hong Kong for the marketing and distribution of BFC food and beverage products in Hong Kong, Macau and certain parts of Southern China. This is in addition to BFC’s own marketing in China and the ASEAN regions, and “fills a gap” in the overall Asian distribution network.
Across the ASEAN region, BFC has distribution arrangements in Thailand, Vietnam, Brunei, Cambodia, Malaysia, Malaysia, Indonesia, Philippines, Singapore, Laos and Mayanmar.
RECENT PERFORMANCE
In early December, Beston reopened the Murray Bridge Plant (renamed Beston Pure Dairies) and announced the evaluation and planning for a soft cheese manufacturing facility there. Chairman Dr Roger Sexton’s opening ceremony speech is attached
here. It gives a general feeling about management’s passion and direction…although as a general warning it is also likely to generate significant cheese cravings.
The
AGM presentation is also attached
here.
Achievements to date (these are all from the AGM presentation) include:
Dairy
- Re-opened: UDP factory at Murray Bridge, renamed Beston Pure Dairies
- 26 million litres milk processed in 3 months (vs budget of 25 million litres for full year 2015-16)
- Produced 2600 tonnes of cheese YTD (vs budget of 1400 tonnes for full year 2015-16)
- Reopened Jervois dairy factory
- Produced 700 tonnes of whey powder YTD (vs budget of 270 tonnes)
- First shipment of 220 tonnes of cheese (in December 15)
- First order received from Europe for 120 tonnes of cheese
- Restart of high value Lactoferrin plant
- Acquired a2 dairy herd for production of a2 Milk™
- Produced first batch of 50% low sodium (salt) Cheese for trialling with health conscious consumers (an Australian First)
- Brought back former iconic “Centenary” black waxed vintage Cheddar and former range of Murray Bridge Cheeses (Gouda, Aussie Jack, Goshread)
- Superior Infant Formula developed in conjunction with NBI
- Blend and Pack agreement with strategic partner to implement early go-to-market strategy, ahead of dedicated facilities planned Jervois and Brunei
- +35 new jobs created
- +25 local suppliers engaged
Seafood
- Settled acquisition of Mori Seafood (Port Lincoln) and Five Star Seafood (Port MacDonnell)
- Increased lobster production from 128 tonnes pa to 380 tonnes pa (+197%)
- Increased processing of Southern Blue Fin Tuna from 650 tonnes pa to 735 tonnes pa (+13% on prior period production)
- First to market with 4 tonnes of Southern Blue Fin Tuna retail packs to China (an Australian First)
- First BGFC shipment of Kingfish and Oysters to Shanghai customers
- Developed concept for a new retail “Ferguson” range of seafood to meet changing consumer markets
Meat
- Completed acquisition of Scorpio Meats
- New plant and equipment purchased and installed
- Meat processing production increase from 2,000 tonnes to 2,500 tonnes (+25%)
- Scorpio now has 98% market share of all meat used in Australian-produced baby foods
- Launched a “No Numbers” initiative i.e., an “Allergen Free” range of meat products (the products contain no artificial additives or preservatives which are normally shown as “Numbers” on food packaging)
- Signed agreement with leading food company for supply of Angus beef sliders to a major Australian supermarket chain
- New beef bacon product exported to Middle East and organic meatballs to Singapore
- Export of cooked lamb shanks to Japan
- Range of healthy, ready-to-eat meals introduced to the markets in Australia and overseas (under the “Yarra Valley” brand)
Health & Wellbeing
- Settled 20% investment in Neptune Bio Innovations Pty Ltd
- Range of new health enhancing functional foods developed in conjunction with BGFC Dairy and Meat Divisions for release in 2016 (e.g. “Heart Healthy” Milk)
- New HQ and product research facility established at Lidcombe Business Park, Sydney
- Long-term contract signed with global customer for use of Lo-Sal 50 salt replacement product
- Orders obtained for condensed milk replacer product for export to India, Bangladesh and Pakistan
- Established Tropical Research Centre in Brunei (in conjunction with Government of Brunei) to produce medicinal, pharmaceutical and health products from plants in the Borneo Rain forest
Results to November 2015 (including November estimate) were revenue of $5.8m & NPAT of $1.3 million
There are no forecasts from the company in relation to future financial performance.
INVESTMENT CASE
Beston provides
exposure to the food and food manufacturing industry, and importantly at a level not previously available to retail investors. Consolidating small businesses to create
economies of scale and improve pricing power, and creating a q
uality global food brand, offers investment and valuation upside.
There is also scope for increased CAPEX to improve capacity. Eg the lobster business was operating at around 50% of capacity and the the UDP dairy assets were operating at 39% of capacity prior to being acquired from receivership. The achievements to date show big improvements on these figures
Growth will come from brand building, increasing the product range to meet customer needs, taking advantage of the “Bricks & Clicks” (online and offline) sales strategy, reducing food additives, and ensuring the delivery of premium Australian products with security of supply.
There are lots of other "positives" contained in the company presentations, including asset location, first mover advantage, food security, and the food supply/demand fundamentals as the Asian populations grows in size, wealth, and diet composition develops.
The concern is that despite the name, Beston Global Foods is only a collection of indirect, minor investments. The businesses haven’t operated together and BFC has no control over the direction of Ferguson or Paris Creek. There is no track record, a high level of risk in the “merger” of unrelated assets and a complex business structure.
Management experience is also a concern. Neither Beston Global Food nor BPAM appears to have much management experience within the dairy and seafood businesses and with the exception of executive director Don Taylor, who is chairman of Graincorp Ltd (GNC), there appears little experience in the food and beverage business at a senior level.
Other risks include the standard agricultural risk, currency risk, customer/supplier risk, and more generally regulatory and industry risk.
There isn’t any lack of information about the company and its products, plans and opportunities on the website and in the presentations. These guys are slick with the marketing and seem to have their act together in terms of promoting themselves in the right spaces.
The “story” sounds fabulous – putting together a “dream team” of food and food production assets, vertically integrating to reduce supply/customer risk, adding a food science and technology overlay to ensure the latest production innovations and adding the right distribution in the right places.
The company also holds great appeal for the ethical style of investor – a food company that profits by improving health outcomes is a bit special. And did we mention that that they make great cheese. If we were thinking of adding stocks to the portfolio, this company would make the shortlist for a (small) position in the MT Growth Portfolio due to the many opportunities.
But any investment in BFC comes with a lot of risk – this is a very small, untested company with little track record operating in a highly volatile industry. If management’s passion, strategy and achievements to date are anything to go by, things will be fine but any investment needs to be monitored closely. The share price is quite volatile.
BROKER VIEW - Bell Potter initiated coverage last year with a hold recommendation and a target price of 42.5c. The analysts notes that BFC is leveraged to growth in demand for protein from Asia through its marketing and distribution platform and a portfolio of investments leveraged to dairy, seafood, meat and functional foods. As a start-up the largest near term risk is the pace at which BFC can achieve its stated goals in capturing a greater share of the margin in distribution.
TECHNICAL VIEW - The stock is sitting on its uptrend support line having fallen almost 16% this month. This pullback could represent a great buying opportunity. The stock looks oversold on the RSI and it could potentially bounce off its support line from here. But watch for a break in trend.
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