Certainly, that is an argument, however, I also consider the following as relevant:
* The AHF baseline is $5.6M (F16) and $7.6M (F17) - ASX 8/2/16.
* Bell Potter's AHF estimate is $6.9M (F16e).
* The CDC baseline in F14 was $15M - ASX 8/2/16.
* The CDC F16e pro-forma is $24.4M (Bell Potter, 12/1/16).
* Current utilisation is at 50% (ASX, 29/12/15).
Bell Potter's forecast for AHF is $28.8M in F17e and $30.81M in F18e.
BP's change in forecasts due to CDC (12/1/16) is:
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
Column 5 |
Column 6 |
Column 7 |
| 1 |
Year
|
F16e
|
|
F17e
|
|
F18e
|
|
| 2 |
Event
|
Old
|
New
|
Old
|
New
|
Old
|
New
|
| 3 |
BPe
|
6.0
|
13.7
|
7.3
|
28.8
|
7.5
|
30.8
|
| 4 |
CDC impact
|
0.0
|
7.7
|
0.0
|
21.5
|
0.0
|
23.3
|
| 5 |
Farm impact
|
6.0
|
6.0
|
7.3
|
7.3
|
7.5
|
7.5
|
Even if there is 100% crossover, the CDC impact will at best go to $28.8M (F17e) and $30.8M (F18e) noting that BP's CDC F16e pro forma, on 50% utilisation is $24.4M (circa, $47.6M at 100% utilisation, maybe 5% higher if fully tested, so close to $50M)).
This therefore suggests, even with 100% crossover, that BP's forecasts are currently built around CDC (based on the $47.6M rating), being between 45% - 60% utilised in F17, and between 49% - 65% utilised in F18.
So, there is very clear upside to the CDC /AHF story in the event of plant utilisation being ramped up. Considered in another way, the combined milk to market selling, and CDC processing (if rated above 85% utlisation in F18) could see a revenue stream >$50M using the metrics of:
* CDC 100% utilisation revenue range = $47.6M - $50.0M
* so, 85% utilisation = $40.4M - $42.5M (all being equal).
* AHF farmgate revenue range = $7.6M (AHFe 8/2/16) - $11.0M (+2 farms averaging $1.6M each of which 1-3 are currently being considered in the remainder of C16).
Even 80% utilisation with 1/2 supplies sourced from AHF, plus 2 new farms, would come to $5.4M AHF contribution, plus $40M CDC contribution (but at a higher rated margin due to the self sourcing).
All I am saying in this is that BP's most recent research on AHF is assuming a sub-60% (average) CDC utilisation as far out as in F18.
It is therefore quite clear that a higher utilisation of the CDC facilities, heading towards the 80%+ mark (up 60% on the current utilisation rate - ASX 8/2/16), could well propel some serious profits being generated in F17 and f18.
Currently, on a CDC utilisation estimated range of 45% - 60% (52.5% midpoint) in F17, CDC looks like adding $2.5M in EBITDA and $2.0M in EBIT and $1.2M in NPAT.
In F18, on a similar utilisation estimated range of 49 - 65% (57% midpoint), F18e EBITDA contributions from CDC look like being (given BP's 12/1/16 estimates) +$3.0M in EBITDA and $2.5M in EBIT and $1.7M in NPAT.
So, working this through, it could well be argued that for every 5 points (5%) increase in CDC utilisation above 50%:
* EBITDA increases by $500K;
* EBIT increases by $500K; and
* NPAT increases by $500K.
If so, then at 85% plant utilisation, EBITDA could well be $8.9M in F18, EBIT, $8.1M in F18 and NPAT, $6.9M in F18 (all things being equal).
By operational and comparative size analysis, that's still small for an ASX (albeit, emerging) listed company, but in the context of there being 192.7M shares on issue (current + 100% loyalty + 100% convertible notes), then the EPS on F18 (85% CDC utilised) NPAT, could well be 3.6c per share. Even at the EBITDA level, it would be 4.6c per share.
This of course assumes the status quo (no new farms acquired, all existing revenue streams maintained without AHF milk being diverted to CDC). If however AHF milk is indeed diverted to CDC, then the likely margins will increase beyond those set out in BP's 12/1/16 release.
In pricing AHF at 31c on 12/1/16, BP is really assuming the status quo (post-acquisition), with:
* no new farms acquired;
* CDC capacity utilisation remaining in the low 50s range; and
* minimal re-direction of milk supplies to CDC.
On this basis, BP's assessment prices AHF at 15.9x F18e estimates in circumstances where CDC's effective utilisation is assumed in the 49 - 57% range. Take this however to 85% whilst maintaining the above post acquisition assumptions, and the PER becomes 8.6x at BP's 31c PT.
Again, lots of analysis but it also answers or attempts answering one of the recently posed questions:
IS CDC ALREADY PRICED INTO AHF'S CURRENT SP?
The answer to this is MAYBE BUT NOT REALLY, but only if:
* the status quo is entirely maintained;
* nothing else changes;
* no supplies are re-directed towards CDC;
* plant utlisation remains in the low to mid 50s range;
* no new farms are acquired;
* farm gate prices are maintained as they are; and
* no new markets /products are developed which can improve on the current offerings.
Otherwise, the answer to this is, NO, because there is so much to be gained to the upside in CDC's utilisation (anything from +60% - 100% if at full utilisation), plus further farmgate synergies, expanding herd size, etc, and that's before any new farms are considered.
Clearly, then, the vertical integration story has much more to be played out with than is currently the case and the real catalyst will be with completion of the CDC deal being advised, followed then by developing investor /institutional interest.
That's my summation based on looking at BP's recent research piece, and considering together the BP information with today's Investor Release, plus other recently released information. Everyone's own research on this however is required. The above is what I'm seeing, but it may be different to others. So, as always it pays to DYOR. It is however one of the reasons why I have said before that this is really a 2017 story in the making of which what is currently happening is just a part of the overall dynamic that is evolving.
