Infant Formula Stocks: Wattle Health, Clover Corp, Synlait Milk & Bubs Australia

  • November 19, 2019 03:35 PM AEDT
  • Team Kalkine
Infant Formula Stocks: Wattle Health, Clover Corp, Synlait Milk & Bubs Australia
The Race is On

Infant formula players are vying for the market share in countries with favourable fundamentals. These fundamentals include growing population, increasing disposable income, fertility rates, barriers to entry etc.

Among the most sought-after market – China is witnessing increasing number of companies from ANZ region growing synergies with Chinese firms. This year has seen the proposed acquisition of Bellamy’s Australia Limited (ASX: BAL) by a Chinese company.

Meanwhile, Wattle Health Australia Limited (ASX: WHA) is set to form a joint venture with a different Chinese firm, Synlait Milk Limited (ASX: SM1) has a presence in the country already, while Bubs Australia Limited (ASX: BUB) has penned an agreement with Alibaba for product sales.

Let’s discuss four stock engaged in the infant formula business:

Wattle Health Australia Limited (ASX: WHA)

November 2019 has been very busy for Wattle Health Australia Limited and the company has updated the market with significant developments. Earlier this month, the company has notified about the collaboration agreement with Nouriz Fine Food Co Ltd, whose major shareholder is a China State-Owned Enterprise.

It is said that the partnership is set to form of a Joint Venture to produce, market Australian organic nutritional dairy products sourced from the Corio Bay Dairy Group into to China market.

Wattle Health Australia LimitedOrganisational Restructuring & Strategic Actions

A few days back, the company has reported that Dr Tony McKenna was nominated by the Board of the company to take over the role of Group Chief Executive Officer & Managing Director, starting from 1 February 2020. Mr Mckenna is the current CEO of Corio Bay Dairy Group (CBDG), having experience of over thirty years in Australia, New Zealand and internationally.

Current CEO and Executive Chairman – Lazarus Karasavvidis would continue his role until Mr Mckenna takes the new role. Post that, Mr Karasavvidis would remain an Executive Director in the company.

In implementing its organic strategy, the company has an exclusive supply of certified organic milk with its Joint Venture partners in CBDG – Organic Dairy Farmers of Australia (ODFA). Meanwhile, the construction of the country’s first dedicated organic nutritional spray dryer is on track to complete in the first half of 2020.

To complement the commencement of operations in 1H 2020, the company has made two appointments. Mr Uday Joshi has joined as Technical Manager and Teguh Jodjaja as Development and Quality Manager.

Increasing Stake in B&P

Concurrently, the company has entered into agreements to acquire an additional 75% of Blend and Pack for an upfront consideration of USD 30 million and a deferred payment of USD 25 million.

The Share Purchase Agreements (SPA) were executed with Mason Financial Holdings to acquire 75% of Blend and Pack, increasing WHA’s stake to 80%. WHA has substituted the original agreement signed in July 2019 with the new one to reflect more favourable financing terms.

Under the new terms, the funding for completing the transaction does not relies on debt finance structure and include a deferred payment of USD 25 million over a five-year period through loan promissory note along with upfront payment of USD 30 million.

Right Issue

WHA is seeking to secure partial funding for the acquisition of Blend and Pack through a partially underwritten right issue to eligible shareholders of up to approximately 155.60 million shares.

It aims to raise a maximum of approximately $62.2 million prior costs with a minimum capital raise of $55 million via four new shares for every five shares held at the record date at an offer price of $0.40 per share.

WHA is conducting an Extra Ordinary General Meeting on 16 December 2019, allowing the shareholders to vote on the proposed acquisition of B&P, right issue or any shortfall offer associated with right issue.

The record date for the right issue is 21 December 2019 with the opening date on 26 November 2019, closing date on 10 December 2019, shortfall offer on 13 December 2019, and issue of new shares on 17 December 2019.

Clover Corporation Limited (ASX: CLV)

Clover Corporation acts as a catalyst for products related to infant nutrition and others, including pharmaceuticals, dietary supplement, food and beverage, animal food, and clinical nutrition.

Intellectual Property

Clover Corp’s says its patented microencapsulation technology has best in class application performance with:

  • Protection against oxidation and superior sensory stability;
  • suitable for a wide range of food applications;
  • benefits of non-refrigerated storage with a shelf life of 24 months, lowering cost of logistics, storage and use;
  • 60% oil loaded powder delivering Tuna oil (14.5% DHA), ARA (24%), and Algal DHA (24%).

In addition, the technology is augmented with China regulatory compliant ingredients and over 18 years of proven global use within dry-blended infant and children formula products.

Intellectual Property Regulatory Changes Outcome for Clover (Source: CLV’s Presentation, October 2019)

Spray Dryer Investment

Clover manufactures its nutritional powders on spray dryers, having increased volume by more than 20% per annum, now requires additional capacity to support future growth.

Clover’s partnership in Melody Dairies, which would be owned by four partners with access to dryer’s capacity equivalent to their share of the business, is a separate company that is building and operating a nutritional spray dryer in Hamilton, New Zealand (NZ).

On 19 November 2019 (AEST 03:19 PM), CLV was trading at $3.090, down by 0.323% relative to the previous close.

Synlait Milk Limited (ASX: SM1)

New Zealand-based, Synlait Milk have come a long way from purchasing its first farm in 2000 to clocking revenues of NZD $1 billion for the first time earlier this year at the year-end on 31 July 2019 (FY 2019).

Growth Continues

In October this year, the company reported on the conditional purchase of Dairyworks for NZD 112 million. The transaction would allow the company to further move towards the delivery of its everyday dairy strategy.

Subject to Overseas Investment Office Approval, the Dairyworks transaction is also complementary to the recent acquisition of Tablot Forest – a cheese manufacturer.

Infant Nutrition

In FY 2019, the consumer-packaged infant formula volumes of 42,907 MT were up 21% on FY 2018 and in line with the guidance range of 41,000 - 45,000 MT. The company continued the commitment to support a strong partnership with The a2 Milk Company (ASX: A2M) as it continues to grow in the China infant formula market.

China Business (Source: SM1’s Presentation, October 2019)

Synlait has dedicated regulatory staff in Beijing and Shanghai working through the registrations with SAMR. The Akara and Pure Canterbury formulation registrations have been accepted subject to a site audit, and it is working through the registration process for e -Akara.

Further, Pokeno site adds 45,000 MT of infant base powder manufacturing capacity. Synlait has said it is very well placed to take advantage of the “Healthy China 2030” policy guidelines recently announced.

On 19 November 2019 (AEST 03:19 PM), SM1 was trading at $8.680, down 0.23% relative to the previous close.

Bubs Australia Limited (ASX: BUB)

In 2006, the founder of the company – Kristy Carr, decided to solve the problems she faced while raising her new-borns – the lack of premium organic baby food. Presently, the company is an ASX-listed entity and is the largest producer of goat milk products in Australia.

Vietnam Entry

Recently, the company has secured ranging for Bubs product line-up with Bibo Mart JS – Vietnam’s largest Mother & Baby store chain with 135 stores, majorly located in prominent metropolitan areas.

A master distribution agreement was executed with Viet Nam TVV Service and Trading Company Limited (TVV), which is one of the largest Vietnamese owned distributors in Vietnam’s infant nutrition industry, supplying to a large network of around 20,000 retail outlets.

It was mentioned that the infant nutritionals domestic market in the country is estimated to be worth $2.2 billion, having grown at an annual compound average growth rate of 7.7 per cent over the past five years.

Also, the infant nutritionals market includes the infant milk formula category, which is estimated to be valued at $1.8 billion. It is expected that the company’s product would hit the stores in December 2019.

BUB said that a conservative revenue projection from the agreement is expected to be $1.5 million in the first year, and the contractual term is for two years that could be terminated in violation of minimum sales target.

On 19 November 2019 (AEST 03:20 PM), BUB was trading at $1.100, up by 1.852% relative to the previous close.


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