Stocks’ Details

Australian Agricultural Company Limited

De-Growth on the back of Macroeconomic factors: Down 2.2% on May 23, 2018, Australian Agricultural Company Limited (ASX: AAC) announced its 2018 full year performance wherein revenue was $379.7 Mn from beef and cattle sales, marking degrowth of 14.4% on Year-on-Year (YoY) basis. Statutory EBITDA loss stood at $35.3 Mn in FY18 as compared with earnings of $133.2 Mn for FY17. During the period, Cost of Production grew by 10% compared with FY17 because of higher input costs and a one-off attrition write off.  Statutory net loss after tax amounted to $102.6 Mn in FY18 as compared to the statutory net profit of $71.6 Mn in FY17. During the period, earnings were impacted by several factors such as intense competition, reduced volumes due to less reliance on external supply, and increased input costs driven by dry weather conditions. On the balance sheet front, the company benefitted from a robust balance sheet with significant liquidity, supported by debt refinancing and reduced financing costs. We expect that the company will continue to maximize the value of its land, water and herd resources through the disciplined allocation of capital, which will remain a strong focus in the coming years.
On the other hand, the management has taken decisive actions to stop ongoing operational losses, thus, they suspended the Livingstone Beef facility, but they will continue to maintain it at a level that enables an efficient plant restart given the prevailing macro conditions to be sufficiently supportive while minimizing costs in the meantime.The group might look at various options, including a sale, of the loss-making business. Further, they informed the market that they will be particularly focused on maintaining their robust balance sheet and prudent debt coverage ratios and optimizing the supply chain in next one year.


Full Year Financial Highlights (Source: Company Reports)
Looking ahead, the macro conditions in the first half of the 2019 financial year continue to be challenging, and management remains focused on continued financial discipline and driving internal cost efficiencies through efficient feed use and cattle movements. Besides this, the Group has appointed Nigel Simonsz to the Board as a Chief Financial officer (CFO), effective from August 01, 2018.  Moreover, Anna Speer will also join as a Chief Operating Officer Pastrol on August 16, 2018. Considering the high operating expenses and net loss for the full year which is a concern and increased complexity and processes to meet the needs of the animal rights forums, we give a “Hold” recommendation on the stock at the current market price of $1.105, while AAC has been a diversified agribusiness.
 

Wattle Health Australia Limited

Update on Fund Packaging for Joint Venture: Wattle Health Australia Limited’s (ASX: WHA) stock plunged 13.4 per cent on May 23, 2018, following the voluntary suspension from the official quotation in the early of April month and finalization of join venture with Corio Bay Dairy Group and a potential capital raise. The company’ shares returned to trade on May 21, 2018 after being offline for more than a month and a half. The company has now completed the funding package of $77.9 Mn to meet its financial commitments for the Corio Bay Dairy Group joint venture. In order to reduce the dilution to shareholders, the company has secured a $20 Mn 3-year loan at an interest of 8% per annum with Prospere Advisor Limited. Further, it had received commitments for a $20.0 million institutional placement to institutional investors at the same price as the Offer, namely $1.25 per fully paid ordinary share. Besides this, the group announced a non-renounceable pro-rata entitlement issue of up to approximately 30.3 million new WHA ordinary shares at an offer price of $1.25 to raise up to approximately $37.9 million. The Offer will be made to eligible shareholders based on 1 New Share for every 5 existing shares held on 24 May 2018 (Record Date). If the Company does not raise a minimum of $30 million under the Offer, then the Offer will not proceed, and all application monies will be returned to respective shareholders. Further, we expect that the group with this capital raise will have the financial security to continue to execute its long-term business plan to be a leading Australian Organic Nutritional Dairy company with expanding distribution networks both domestically and internationally.


Overview of the Joint Venture (Source: Company Reports)

On the other hand, the company secured an agreement with Metcash Trading Limited. The objective of this deal is to achieve a distribution of its baby food range with MTL which will support to increase brand awareness and drive sales not only of its baby food range but also its existing range of infant formula. MTL has more than 10,000 independent retailers and over 90,000 wholesale customers across the food, grocery, liquor and hardware industries. While there are concerns on minimum fundraising through non-renounceable pro-rata entitlement offer, we put an “Expensive” recommendation on the stock at the current market price of $ 1.360.

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