Goat Milk Formula Buzzing on ASX; Nuchev Seeking Multiples

  • Nov 07, 2019 AEDT
  • Team Kalkine
Goat Milk Formula Buzzing on ASX; Nuchev Seeking Multiples
Dairy Market

Lately, the Australian markets have been bullish on dairy products. The valuations in the space have been skyrocketing as well. Moreover, one of the mainstream players in the infant formula market is being acquired at an attractive valuation.

Whether the expectations of pro-income investors in terms of the profitability of these companies are reasonable or not remain a concern, market participants should note that the growth trajectory of infant formula remains higher, and lower levels of profitability or even no profitability is a harsh reality that should be acquainted in the first place.

Goat Milk Infant Formula Market

Research conducted at the RMIT University has found that the goat milk formula has 14 naturally occurring prebiotic oligosaccharides, out of which five are present in human milk as well.

The research had analysed two types of commercial goat milk based infant formulas, primarily focusing on oligosaccharides that have the capability to improve the growth of beneficial bacteria while protecting against harmful bacteria in the gut.

Some of the players in the goat milk infant formula market are DANA Dairy, Little Baby, Nuchev, Kabrita, Baby Steps, Holle Baby Food, and Bubs Australia Limited (ASX: BUB). It appears the players in the goat milk infant formula are majorly privately held companies, with only one ASX-listed player.

Nuchev Affair

Nuchev is a goat milk formula producer, based in Melbourne, Australia. The privately held player presents its existence as a health and nutrition solutions company, primarily focused on the Australasian market.

Dairy business renowned veteran – Mr Ben Dingle runs the company, which he founded in 2013. He is presently the Chief Executive Officer of Nuchev, and in 1999, he co-founded New Zealand’s Synlait Milk Limited (ASX: SM1).

In the past, Mr Dingle has been responsible for overseeing farm operations and developments, including the construction of dairy farms, implementation of irrigation schemes and adoption of world’s best farming practices.

Nuchev operates the Oli6 brand to market its goat milk based formula products. It imports goat milk from the Netherlands, which is renowned for goat farming and milking. The company, which intends to become a fully integrated dairy goat business, boasts a large base of dairy goats in Victoria. The company is engaged in the breeding and rearing of the dairy goat base for future milk requirements.

In May 2019, the media had reported on a move by the company which saw placing of goat milk formula brand – Oli6 in stores of Coles Group Limited (ASX: COL). The move was undertaken after the brand made its way to pharmacy stores, allowing customers to seek benefits of the product from chemists.

In addition, the category manager at Coles, reportedly stated that the demand for goat milk-based formula is picking up at a rapid pace, and the group is delighted to have partnered with Nuchev to increase the availability of premium Australian-made goat milk formula.

In June 2019, the media had speculated regarding a possible IPO by the goat milk formula producer, following a funding round that raised $30 million. It was said that the company remains on track achieve 3x sales growth in its Oli6 brand business.

Meanwhile, the existing investors along with some institutional investors pumped in fresh funds as a part of its $30 million raising. It was noted that the fresh funds would be utilised in brand-building and marketing.

Most recently, the media had cited that the company has appointed an underwriter and lead manager to oversee its efforts in going public. The transaction is speculated for a $40 million capital raising at $2.5 to $2.95 per share, valuing the company at around $114 million to $129 million in terms of market capitalisation.

Race for Market Share is On

On 6 November 2019, Bubs Australia Limited (ASX: BUB) announced its plans for selling its adult goat milk formula in Chinese markets. BUB has partnered with the Centralized Import Procurement (CIP) program of Alibaba and The Land – a distributor in China.

The company is expecting to export the adult goat milk formula products worth $10 million in the first year. The distribution partner would be marketing its products on e-commerce platforms, and through general trade and cross-border e-commerce channels.

The products include a newly launched Deloraine®, which would be produced at Australia Deloraine Dairy in Victoria and CapriLac®. In addition, the company would be entering into a Strategic Cooperation Memorandum of Understanding (MOU) with CCIC Australia.

Recently, Wattle Health Australia Limited (ASX: WHA) reported the signing of a collaborative agreement with Nouriz (Shanghai) Fine Food Co. Ltd. – a Chinese nutritional dairy company.

It was reported that the company would be incorporating an equal joint venture partnership for manufacturing and marketing. The partnership would be engaged in selling a range of certified Australian organic nutritional dairy products supplied from WHA’s Corio Bay Dairy Group.

The companies are set to form an Australian based joint-venture to utilise the expertise of both parties in executing sales & marketing strategies for a new joint brand of Australian certified organic powder products into China.

Synlait Milk Limited (ASX: SM1) and The a2 Milk Company Limited (ASX: A2M) have a strategic partnership in place. According to A2M’s annual report, the company holds ~17.4% stake in SM1, and SM1 supplies infant formula and other nutritional product to A2M.

Race for Market Share is OnProducts (Source: A2M’s Investor Presentation)

a2 Milk has a presence in China since 2013, and the fertility rates in the country are on the rise since 2014, following the change in one-child policy. Meanwhile, SM1 mentions that it is committed to supporting the strong partnership with The a2 Milk Company through its growth in the Chinese infant formula market.

Stock Prices

On 7 November 2019 (AEST 03:46 PM), BUB was trading at $1.100, down by 0.901% relative to the last close.

As of 7 November 2019, WHA remains suspended from trading, pending an announcement related to the proposed acquisition.

On 7 November 2019 (AEST 03:46 PM), SM1 was trading at $8.480, down by 0.703% relative to the last close.

On 7 November 2019 (AEST 03:46 PM), A2M was trading at $11.635, up by 2.874% relative to the last close.


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