The Beston Global Food IPO appears somewhat premature due to low Earnings visibility and high integration risk.
After ten years of negotiation, June 2015 marked the signing of a historic free trade agreement between Australia and China. Its execution is scheduled to render 95 per cent of Australian exports to China tariff free. Under the previous regime, dairy and animal products were subject to tariffs of up to 30 per cent, and manufactured goods were subject to tariffs of up to 14 per cent.
Whilst sugar, rice, wool, cotton, wheat, maize or canola are excluded, the agreement has potential to reverse a decade of stagnation in Australia’s major primary rural industries. After livestock and cereals, dairy is Australia’s third largest agribusiness sector. However after doubling during the preceding twenty years, national milk production currently stands 15 per cent below its 2000 peak. A similar contraction has been witnessed in the nation’s fisheries, which has seen Australia switch from a net export position to a net importer during the past decade.
The coming listing of Beston Global Food Company Ltd (Beston Food Co) has potential to reverse the trend and capitalise on recent trade lilberalisation. The Company has assembled a portfolio of interests in dairy and seafood businesses located in Southern Australia. Its ambition is to develop a vertically integrated branded food enterprise focused on export markets, and has established marketing partnerships in China, Thailand, Brunei and Vietnam.
Proceeds from Beston Food Co’s Initial Public Offer are scheduled to broaden its investment portfolio and provide expansion capital to existing investees. To date the Company has acquired interests in Ferguson Australia, a third generation seafood enterprise principally focused on Southern Rock Lobster exports; as well as B.-d. Farm Paris Creek,a twenty year old integrated dairy producer, near Adelaide. Incentive for new investors is the potential value growth from integration of these assets with other standalone farms and processing facilities. Multiple acquisitions have been lined up to support the Initial Public Offer and overall strategic plan.
Also providing allure is a projected 1.5c – 2c/share dividend, however the Company has abstained from any other forecast surrounding its future financial performance. Principal risks therefore surround Beston Food Co’s limited operating history and low earnings visibility. There is no evidence suggesting its projected dividend is sustainable, and with the bulk of its portfolio constituting indirect, partial equity interests, or assets still to be acquired, its ambition to establish a vertically integrated branded food enterprise is also subject to high amalgamation risks.
Company: Beston Global Food Company Ltd
ASX Code: BFC
Shares on Offer: 371.4million
Listing Price: $0.35
Market Capitalisation: $157.1million
Listing Date: August 24th
Author: Tim Morris
Aug 21, 2015
Having studied Commerce and Science at the University of New South Wales, Tim began his career in an analytical capacity with Wise-owl. Tim has conducted over 500 corporate valuations and appraisals, specialising in pre revenue assets and emerging markets. For the last five years, his Equity Capital Market insights have been featured as part of a weekly column in The Australian and regularly features on Sky News, CNBC, ABC and Bloomberg TV.