An exciting small cap company that is worth talking about is The Food Revolution Group (ASX:FOD), it operates a fruit and vegetable processing plant in Mill Park, Melbourne, Victoria.
The company has a number of products, these include – Juice Lab, Kombucaha, Fruit Farm and Thirsty Bro’s. You can find these at your local Woolworths, Coles or independent supermarket. Additionally, the plant also processes food which is also sold as ingredients to third-party food producers and provides co – packaging. In 2017 the break up of revenue was as follows – Branded (47%), Co-packing (49%), Ingredients & other (4%).
On a personal note, the “Juice Lab” – a 400ml bottle containing a mix of juiced fruits is a juice I frequently purchase.
Below are some of the company’s key stats as of the 5th October 2018 & the June 18 Annual Report.
- Market Value: $65m
- Book Value: $19m
- EBITDA: $3.7m
- NPAT: $2.6m
- P/E: 23x
The above headline figures don’t imply too much about the company’s fair value or its attractiveness as a stock. However, it does serve as a starting point in assessing the company.
For example, the market value only captures the shares value. A better indication is the enterprise value ,which is circa $70 m ($65m market cap – $1.8m cash at bank + $3.8m bank debt. The enterprise value being the cost to purchase the company in full which would include the payout of Bank debt.
*Not included are $14m off-balance sheet commitments, as well as a provisional deferred consideration liability of $7.1m (Paid as of 30th September 18)
Some noteworthy points worth mentioning, the company has little debt with profits and cash flow adding capacity to borrow.
Outlook / Catalyst / Future Earnings
At current, its seems the company is tracking well to sell its Juices directly to Australian retailers as well its ingredients to third-party producers with domestic revenues in excess of $30m. And its current earnings shouldn’t be underestimated, its impressive that the company has been able to offer products to multiple markets, these include co-packaging, branded products, and selling third-party ingredients. This gives the company multiple levers in growing earnings and reduces some of the concentration risk with Australian retailers.
The group has also taken extra growth initiatives in entering the Chinese market via a distribution agreement with Health-More and a subscription partnership with Careline.
The Health-Moore Agreement aims to develop additional product ranges, and provide access to new sales channels including in Asia including Wechat merchants, Daigou community, online, and Retail. Health-More, as the name indicates the focus is on Health related products; common products you might be aware of are Lucas Paw Paw & Nu-Lax.
The second initiative is with Careline, a signed binding subscription deed aswell as a c.$20m strategic investment (subject to performance targets). Careline distributes Australian made healthcare and skincare products throughout Asia. There current products include Fish Oil Vitamins, essential oils, soaps and creams etc. The partnership is targeting $100m & $500m in revenues in 3 & 5 years. Revenues of $500m at current margins would produce profits of c.35m and applying a current P/E of 23x would value the company at $800m.
With a market value of $65 and current operations at 35% capacity, multiple revenues streams, and the potential of the Asia markets, minimal debt, there is plenty of upside in earnings at a reasonable price, it’s a stock definitely worth watching.
Future posts to come.