The consumer staples are an essential need of every individual. The sector is primarily formed of companies related to food, beverage and other household items. Additionally, the S&P ASX 200 consumer staples index witnessed a rise of 0.91% on 9th July 2019 trading session. Let’s look at 2 consumer staples stocks along with their key developments.
Star Combo Pharma Limited (ASX: S66)
Star Combo Pharma Limited (ASX: S66) is an Australia registered company involved in the manufacturing of dietary supplement products. Star Combo Pharma Limited was officially listed on ASX in 2018. On 8th July 2019, the company announced that it has inked an agreement to acquire Bio-E, which is a natural food, beverage and health company, for an amount of $60.0 million.
Who is Bio-E?
Bio-E is an Australian owned company, offering health and natural focused products to its consumers. Bio-E has a young management team, which is in-step with emerging trends in Australian and Chinese culture and its lead product ‘Lemon + Manuka’ was a new niche within the fast growing health drinks category.
Bio-E’s core competency is to identify consumer trends, develop new products and bring them to market as quickly as possible with a first mover advantage. 90% of the products are sold to Australian based wholesaler/distributors, with no FX or currency movement risk. Almost 75% products of the company land in a bonded warehouses in China of e-commerce platforms like JD.com, Kaola, T-mall, etc.
Moving to the marketing model. Bio-E employed brand ambassadors like AngelaBaby in 2018-2019 and Tamia Liu who resonate with the targeted Chinese youth audience. It is additionally focused on digital advertising and not ‘traditional offline and has a relatively fixed expense with large operating leverage.
Furthermore, Star Combo Pharma Limited and Bio-E have developed a new product, Sleep Diet. In January 2019, Bio-E approached Star Combo with an idea for a new pill aimed at improving sleep and losing weight and both have worked together to develop and commercialise the product. In addition, the product was rolled out in May, and generated sales of $850,000, with high gross margin, very low cost to develop and has future orders of more than $10 million in the pipeline. The company expects pro-forma group revenue of $68 million and pro forma group EBITDA of $13.7 million in FY19.
The company is in the process of raising up to $51.0 million, including a conditional placement of $50 million at the consideration of $0.55 per share and Share Purchase Plan of up to $1 million at the consideration of $0.56 per share in order to finance the upfront cash consideration of $42 million.
Previously, the company entered into agreement to acquire Koala Mall Pty Ltd and Austoyou Group Pty Ltd.
In another update, the company has issued a notice of Extraordinary General Meeting to be conducted in Sydney on 6th August 2019. The main agenda of the EGM is as follows:
- Resolution 1: Approval of the issue of Share Consideration to Vendors under the Share Sale Agreement
- Resolution 2: Approval of placement of shares to sophisticated and professional investors
- Resolution 3 - Approval of issue of Shares to a Director (Mr JinXing (Star) Zhang)
- Resolution 4 - Approval of issue of Shares to a Director (Ms Su Zhang)
- Resolution 5 - Approval of issue of Shares to a Director (Mr Richard Allely)
- Resolution 6 - Approval of issue of Shares to a Director (Mr Craig Bottomley)
The factors which will drive the growth in financial year 2020 consists of fermented drinks range, beginning sales in physical stores in China and recently received full China label and food registration, seven new Bio-E products in concept stage, which are likely to enter market with 2 imminent product launches and improvement in Living Healthy revenue/profitability, among others.
The stock, at market close on 9th July 2019, was trading at $0.770 per share, down 6.098% during the day’s trade, with a market capitalisation of $70.96 million. The stock has produced returns of 15.49%, 38.98% and 49.09% for the one month, three months and six month period, respectively.
Keytone Dairy Corporation Limited (ASX: KTD)
Keytone Dairy Corporation Limited (ASX: KTD) is an Australia registered company engaged in manufacturing, packing and exporting of dairy and nutrition products. Keytone Dairy Corporation Limited was officially listed on ASX in 2018. On 8th July 2019, the company via a release updated the market that it has inked a listing agreement with RT-Mart China, a leading hypermarket operator with 484 hypermarket complexes in almost 233 cities in China and in addition, has a market share of 16% in China by retail sales value. As per the agreement, KTD will be a supplier of KeyDairy™ proprietary products, which includes skim milk powder, whole milk powder, Kiwi fruit milk powder and colostrum milk powder, among others.
In another announcement dated 26th June 2019, the company announced that it had entered into a conditional share sale agreement in order to acquire 100% of the fully paid ordinary shares in the capital of Omniblend Pty Ltd. The company will settle the acquisition for $8,000,000 by issuing 18,604,651 fully paid ordinary shares at an issue price of $0.43.
The company reported sales revenue of $2.51 million for FY19, which reflects a growth of 23.1% against the pcp. The company reported a rise in cash receipts from customers in FY19 of 33% to $2.86 million as compared to $2.15 million in FY18.
Recently, the company has received organic certification from AsureQuality, New Zealand.
Furthermore, the company announced that it is going to conduct the Annual General Meeting in Sydney on 26th July 2019. The key agenda for the meeting is as follows:
- To receive and consider the financial statement for the period.
- Resolution 1 – Adoption of Remuneration Report
- Resolution 2 – Re-Election of Director – Peter Hobman
- Resolution 3 – Approval of 10% Placement Capacity
- Resolution 4 – Issue of Consideration Securities to Vendors
- Resolution 5 – Issue of Placement Shares
- Resolution 6 – Election of Proposed Director – Daniel Rotman
- Resolution 7 – Election of Proposed Director – Arie Nudel.
The stock of KTD, at market close on 9th July 2019, was trading at a price of $0.480 per share, up 2.128% during the day’s trade, with a market capitalisation of $70.5 million. The stock has produced returns of -10.48%, 28.77% and 16.05% for the one month, three months and six month period, respectively.
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