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Charting growth for 3 ASX Stocks in Dairy, Beverage, Cereal, And Specialty Seafood Space

  • April 23, 2020 11:55 AM AEST
  • Team Kalkine
Charting growth for 3 ASX Stocks in Dairy, Beverage, Cereal, And Specialty Seafood Space

In current times of pandemic where people are rushing to stock up essential items, there has been an increase in demand and customer enquiry in key channels and markets. Moreover, increased exposure to on-trend categories such as dairy, Nutritionals and plant beverages offer a strong indication to the opportunities in the future as market uncertainties diminish.

Gold MTF non-AMP

Also, loss of jobs has resulted in a consumers’ buying behaviour to buy only essential items. So, the sale for essential items like dairy, beverages, cereals, as well as seafood and other food items has not seen much impact.

Let us look at some stocks from dairy, beverage, cereal, and specialty seafood space.

FNP Experiences Growth Above Plan

Freedom Food Group Limited (ASX:FNP) is one of the earliest companies in the plant-based beverage market of Australia which is principally focused in soy, rice milks and breakfast drinks.

FNP Products, Source: Company’s Report

FNP Products, Source: Company’s Report

The Company believes that the existing macro environment has brought into the light the important hedge that FNP’s unique scale and diversification of activities, including significant Australian-based food manufacturing capabilities, provides in order to support in mitigating impacts from the current disruption.

Related: What Are the Strategies that Consumer Staple Stocks Follow?

FNP’s Retail Grocery channel has experienced growth above plan due to the shift in consumer spending to the channel reflecting government-imposed stay at home restrictions in Australia.

  • FNP experienced a decline in sales in Out of Home (OOH) channels relative to pre-COVID 19 performance due to increased stay at home restrictions during March.

Changed market conditions have compelled the OOH channel, distributors, and retailers to adapt through online sales and new direct to consumer models.

  • FNP’s key brands in this channel are well leveraged through these initiatives.

FNP expects the existing OOH sales weakness against its pre-COVID 19 plan until stay at home restrictions are removed and the OOH channels reopen.

  • Demand for FNP’s Lactoferrin is strong in Nutritional Ingredient, and the Company has initiated the supply of Lactoferrin under a previously announced long-term agreement with a major global pharmaceutical company.

With early signs of covid-19 becoming apparent, Freedom Food Group established upgraded internal protocols to

  • Ensure the health and safety of its people
  • Maintain the integrity of its production facilities
  • Support its customers
  • Maintain continuity of operations

Along with a key focus on prioritising supply of UHT dairy and UHT plant milks including key seasonal SKU’s, FNP remains to work in coordination with key retailers and customers in Australia and export markets to prioritise supply within its operational capabilities.

In the near term, FNP believes there are no likely production constraints arising from the supply of key raw materials or packaging inputs.

Bi-lateral Banking Facilities for Adequate Liquidity

On the liquidity front, the Company has restructured its syndicated and bi-lateral banking facilities with its long-term banking partners HSBC and NAB to increase short term liquidity limits by $100 million, while maintaining the existing overall indebtedness limit.

During this period of macro-economic uncertainty, this shall ensure:

  • Ample strength to the balance sheet,
  • Financial flexibility structure to facilitate changes in sales and inventory mix in the current environment,
  • Increased covenant headroom, and
  • Ongoing growth of the Company over the medium term.

The Company has continued to undertake committed capital expenditure projects that are in line with the key customer and channel commitments into FY2021, and all major expansion works now getting closer towards completion.

With a view to maintaining financial flexibility in the recent macro environment, the Company has deferred its H1 FY2020 dividend announced earlier in February.

FNP stock was trading flat at a price of $4.280 (at AEST 11:38 AM) on 23 April 2020 and has market capitalisation of $1.18 billion.

Adverse Impact on Sales for OGA

A developer of world's first commercial abalone ranching business in Flinders Bay, Ocean Grown Abalone Limited (ASX:OGA) has experienced an adverse impact on its sales due to uncertain environment surrounding the COVID-19 pandemic. Moreover, the continuously evolving situation driven by the COVID-19 translates that the future impact is uncertain at this time and cannot be quantified.

The executive management as well as the board of OGA are actively working on strategies to ease costs and have also agreed to cut their base employment benefits and directors’ fees by 10%; however, entitlements for remaining employees remain same.

Moreover,

  • OGA has regrettably reduced the number of permanent positions within the Company by 3 employees due to a downturn in sales because of COVID-19, flowing to reductions in workloads in some areas.
  • OGA has paused any further material expenditure on its Esperance feasibility study and is engaged only on approvals while postponing all other feasibility expenditure to upcoming times.

OGA remains focused on diversifying and generating sales opportunities with a BIOMASS of more than 263 tonnes of abalone on 31 December 2019 and has more than $3.4 million in the Bank. OGA looks forward to keeping track of market activities as well as monitor the operations of the Company.

OGA stock last traded at a price of $0.110 on 21 April 2020 with a market capitalisation of $ 22.08 million.

Keytone Receives Confirmed Purchase Orders

A producer and supplier of pristine New Zealand dairy and nutritional powdered dairy products to the international as well domestic market, Keytone Dairy Corporation Ltd. (ASX:KTD) reported a significant increase in the number of confirmed purchase orders from Walmart China and Nouriz for their Whole Milk and Skim Milk Powders for a combined total of $1,688,000.

The following orders shall be manufactured in the coming months and exported to China for June and July deliveries:

  • The Nouriz order is $866,000 being c.7.0x greater than their most recent order invoiced in March 2020
  • The Walmart order accounts for more than $822,000 and is a magnitude c.2.4x larger than their last order placed in February 2020

As Walmart China aims to expand its number of stores to approximately 40 by the end of 2020, this has brought a significant opportunity for Keytone.

It looks like dairy product manufacturers are not having a dry season amidst lockdown.

These significant orders indicate a surge in demand that is being experienced across all aspects of the business for both private label work and proprietary products while KTD remains well placed to meet this demand given the diversified nature and scale of its manufacturing plants across Australia and New Zealand.

Related: "Is Coronavirus turning the tables for these 4 Infant Nutrition Stocks"

KTD Signs an Indefinite Manufacturing Contract

Prior to this, Keytone and Iovate Health Sciences Australia Pty Ltd had inked a manufacturing agreement, where the 100%-owned subsidiary of Iovate Health Sciences International Inc., had placed confirmed opening orders worth $3,600,000.

The confirmed orders received by Keytone represent 143% of its total audited revenue for FY19 and the same are to be manufactured during the present quarter, with cash receipts due soon afterwards.

While the term of the contract is indefinite and the volumes to be manufactured are to be confirmed on an ongoing purchase order basis, KTD looks forward to securing new and repeat orders with select global health and wellness brands and the strategic relationship with Iovate is expected to strengthen and shall ensure placement of repeat orders over the coming quarters.

This shall influence the business growth volumes throughout multiple packaging formats as well as product varieties.

KTD stock was trading at a price of $0.400, up by 2.564% (at AEST 11:35 AM) on 23 April 2020 with a market capitalisation of $83.9 million.

 


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