Desk Note: Pure Foods Tasmania (PFT.AU $0.60) - Tasmania on a plate.
We participated in the PFT.AU IPO ($PFT), and have accumulated more on market following the June Quarterly update in late July. Certainly, small to medium caps that can demonstrate an ability to grow, have seen their share prices amply rewarded in the current market, and PFT is no exception. However, we feel that PFT will be worth following over time, given management performance, and uniqueness of their key product, which is "Brand Tasmania". We have outlined the background to PFT and what may be key catalysts for the company over the coming months. The management team has achieved a great deal since the IPO, as you will see below.
- Founded by a number of the original founding investors in Bellamys (BAL.AU taken out for $1.5b late 2019. A successful marketer of infant formula). Listed through an RTO of the Bunji Corp shell (BCL.AU) in April 2020 and renamed Pure Foods Tasmania
- PFT is a MARKETING company. It’s all about selling “Brand Tasmania” which is to market Clean Green Tasmania Food products.
- PFT was formed and foundation assets for listing were Tasmanian Pate and Woodbridge Smokehouse.
- Tasmania Pate – fastest-growing pate company in the Australian market, already supplying Woolworths, Aldi, IGA – others (+++ results record sales +21%, launched new product lines, maintaining solid margins, investing automation with gains yet to come, and expanding manufacturing facility)
- Woodbridge Smokehouse – high-end value add business (they buy in Salmon from majors in Tas), producing a traditionally smoked high-end product (using wood from own orchard). Smaller than the pate business, but a high-end product that is also growing.
- To date, Pate is domestically focused, and the smaller Woodbridge Salmon is ~60% export.
- COVID has had very little impact on the operation of PFT, and if anything helps their acquisition/partnership strategy. They are not reliant on the export markets either.
- Financials – Group sales $4.27m. EBITDA positive $41k vs -$189k in FY19. Listing expenses $198k. Cashflow positive. Tas Pate revenue was up 21% and EBITDA +80%. Cash position from IPO strong as largely unspent and has been cashflow positive.
Management is Key
You learn over time when looking at early-stage companies, to focus in
on the key management. Running an established mature business often requires a
different skillset to organically growing an emerging business. I met Michael
Cooper (MD) prior to the IPO back in 2019 in Hobart. He was in his family
business for 28 years, Juicy Isle Beverage company, which was the largest
organic juice company in Australia when they sold in 2015 (150+ staff). There
was no reason for Michael to come back into business, other than he sees a
massive opportunity to do “Brand Tasmania” well. The key foundation investors I met were all very supportive of Michael and the companies vision.
- Organically should grow circa 50% this coming year. Acquisitions are on the Agenda. (they will have the platform and expertise and capital to do well with them) Looking to be turning over circa $100m within 5 years.
- New Factory (Pate) – Pate capacity increases ~300%. New Automation line ordered. Margins jump.
- New Packaging and 3 new product SKUs going into Woolworths.
- Better For You Range – Ingredients Tasmanian sourced.
- Woodbridge Salmon – reduced product SKUs to focus on profitable ones. Loss of $280k in FY19 turned around to +$22k in FY20 on 6% less revenue shows this is working. Large opportunity to grow with partners in HK and Singapore. Negotiating with new distribution partners currently. New production capacity should be complete in the next two weeks.
- New Product Development – expect a lot to come. Nimble and fast development – 3 news SKUs for Woolworths only took ~6 weeks (chicken, duck and salmon under the “Homestead” brand which is also new). These will go into 805 stores nationwide from October.
- Launched Plant-Based Solution. Sector growing CAGR 15%. Plant-based supply secured. Won't be able to "keep up" with initial demand when launched, given the interest in products. The first example is a plant-based cheese, other categories coming.
- Meal Solutions expected to be available in Q2 FY21. Already a $1b category in AUS alone. Huge opportunity. Watch this space – will be different from what is in the market currently. The intention is that everything is sourced in Tasmania in the meals (think combinations of Tas Salmon, Trout, Chicken, vegetables). Working with developers on an exclusive extended shelf-life product.
- Newly secured export license secured for Mornington production facility. Should deliver another 15% growth to Tas Pate. They now have export licenses to cover both seafood and other food products out of Tasmania (+++).
- Currently in negotiations with “very large online store” in the Asian market.
- Domestic Online store only launched two weeks ago. (shop.purefoodtas.com). Sales already accelerating. Will allow other Tasmanian producers to use the PFT online store. Tasmania Oysters likely to be added shortly with the ability to be delivered fresh.
- Beverages – given Michael's background it is on the radar – think some of the world’s most pure water (found in Tasmania) and fruits.
- Will outsource (things like packing and some manufacturing) to stay capital light. Bellamy’s never manufactured itself as an example of that model.
The following companies are perhaps most relevant. Numbers are taken from
the half-year reports to June 30 2020. This comparison is not to suggest one particular company is over or undervalued, but it does highlight if PFT can grow revenue and maintain its margins, it should be in a good position in terms of cash flow, and the funding of further growth initiatives.
Worth listening to Michael talking through the FY 2020 results, which was held via a webinar last week (WEBINAR). Other recent announcements worth a look -
- 2020 Financial Results Presentation (some key slides below)
- PFT - New
Range Launch into 805 Woolworths Stores
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Wentworth Securities are a team of investment specialists, with expertise across traditional stockbroking through to model portfolio management. With a depth of experience ranging from small caps through to macroeconomic thematics. Fully independent.