The MG Unit Trust Initial Public Offering (IPO) is a special purpose vehicle associated with Murray Goulburn.
Deregulation of the domestic dairy industry has delivered mixed fortunes during the past fifteen years. Unwinding of Government subsidies to farmers from 2000 has seen national milk production stagnate. After doubling during the preceding twenty years, national milk production currently stands 15 per cent below its 2000 peak. The sustained contraction has come at expense of our position within world export markets.
Prior to deregulation, half of the nation’s milk production was exported, ranking only behind New Zealand and the EU in terms of international dairy trade. Subsequently, exported share of Australia’s milk production has fallen below 40 per cent, with the nation’s market position being overtaken by the US.
Impetus for a revival is being driven by increasing foreign investment to the industry and the reorganisation of Australia’s largest dairy processor – Murray Goulburn. The Co-Operative’s principal assets include its flagship Devondale brand, and a supply base incorporating ~2,500 farmer shareholders and nine manufacturing plants in south eastern Australia. Murray Goulburn was established in 1950, and attracts a 37 per cent share of the nation’s milk supply.
With foreign owned processors now representing over 40 per cent of the nation’s milk supply, Murray Goulburn’s reorganisation has been designed to ensure domestic interests remain a priority. MG Unit Trust has therefore been established as a special purpose vehicle to fund Murray Goulburn’s capital demands, in exchange for economic benefits alongside shareholders in the Co-Operative, but not control. Incentive for new investors is therefore provided by Murray Goulburn’s financial performance, but not its potential to become an acquisition target.
On the earnings front, Murray Goulburn is forecast to generate its fourth consecutive period of higher revenue in FY16, driven by stronger milk volumes. Increasing downstream participation has potential to boost earnings margins, but capital expenditures through to FY16 will require distributions to be effectively financed via borrowings. Investors in MG Unit Trust can therefore gain profitable exposure to world dairy demand trends and Murray Goulburn’s financial performance, however complexities surrounding its capital structure and dividend sustainability temper the balance of risks.
Company: MG Unit Trust
ASX Code: MGC
Shares on Offer: 141.4m – 215.5m
Listing Price: $2.10 – $3.20
Market Capitalisation: $1,165m – $1,521m
Listing Date: July 10th
Author: Tim Morris
Jul 01, 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.