We have initiated coverage on Beston Global Food Company Limited (ASX: BFC)  - BFC is a branded food company that aims to provide high quality, safe, clean, differentiated food and beverage products to consumers with ingredient integrity and a secure supply chain to provide consumers with an authentic, genuine and healthy food experience. The long-term strategy of the company is to build a suite of branded food and beverage assets and extract the synergies between the assets with a view to crystallise the value of each of the divisions via an IPO or trade sale. The Dairy division is the largest division of the company with the dairy division accounting for 85% of sales in FY17. The division is expected to be the primary driver of revenue growth in FY18 on the back of a significant increase in the milk supply.  BFC is also recognised for receiving a number of awards for its cheese products, such as mozzarella. The company has developed the OZIRIS application, which allows for products to be traced through the supply chain to verify the authenticity of products and to prevent counterfeiting of products - The counterfeiting of products has become a significant problem throughout Asia. 

Valuation: We have derived a valuation of $0.35 per share for BFC, a 49.8% premium to the share price at 21 February 2018. The valuation is based on the forecast FY18 NAV per share. Given the current status of the company and the significant asset base, we view this as the most appropriate valuation methodology at this stage of the company’s life cycle.  The company is currently in a growth phase, with the company making a significant amount of investment since listing to increase production capabilities and secure raw materials supply. Significant capital expenditure will continue through FY18 and FY19 to continue to grow the company. The share price has fallen significantly over the past two years, however, we view the risks to be to the upside with the company on track to secure an additional 40m litres of milk for FY19 production, which will boost earnings in the Dairy division, and the expected acquisition of the remaining 60% of Scorpio Foods, which will result in a significant increase to the revenue of the Meat division.  You can read the full research report below.


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