Beston Global Food Company Limited

 

BFC Details
 
BFC’s Signs a Deal for the Sale of its Dairy Farms: Beston Global Food Company Limited (ASX: BFC) is engaged in acquiring and operating selected assets and investments in the food and beverage industry throughout Australia and several overseas countries. The market capitalisation of BFC stood at $47.11 million as on 12 June 2020. On 11 June 2002, the company informed the market that it has signed a deal with Aurora Dairies (“Aurora”) for the divestment of Beston’s dairy farms in Mount Gambier for a proposed consideration of $40.4 million in cash. As per the agreement, Aurora will acquire 100% of the of Beston’s four dairy farms and BFC will receive ~17 million litres per annum (“MLpa”) of milk, over a period of 10 years. The sale proceed from the agreement is expected to reduce debt and fund the expansion of Mozzarella and Lactoferrin production. Notably, the transaction is expected to be finalised on 30 September 2020.
 
COVID 19 Update: In a recent update, the company stated that it has continued to witness robust demand for its products despite some down-turn in activity in food service stores throughout Australia due to COVID-19 pandemic. Further, the demand for retail is resilient for mozzarella and for meat products produced by BFC’s Provincial Food Group, through supermarkets and home delivery services.
 
1HFY20 Key Financial Highlights: During the period, the company reported revenues of $51.2 million, as compared to $43.7 million reported in the prior corresponding period. It is to be noted that revenues increased both year over year and on sequential basis, on the back of improved dairy business, as it comes under essential service amid COVID-19 crisis.EBITDA loss came in at $5.7 million, as compared to a loss of $6.6 million reported in 1HFY19. Net loss after tax for the period came in at $3.1 million, as compared to a loss of $11.4 million reported in 1HFY19. Improved margins in the dairy business and significant cost reductions were key positives during the quarter. Operating cash outflow for 1HFY20 stood at $11.4 million, which reflects rise in debtors to fund product sales growth with less sales of raw milk. At the end of the period, the company’s closing cash balance stood at ~$1.47 million, with closing debt amounting to $47.6 million.
 

1HFY20 Key Highlight (Source: Company Reports)
 
Risk Analysis: Numerous industry players are boosting their digital and e-commerce capacities to keep pace with growing consumer patterns. While these actions act as major tailwinds, the costs and expenses associated is likely to keep margins under pressure. Further, higher advertising and other growth-related investments are potential threat to margins. Stiff competition in the consumer staple market adds to the woes.
 
Stock Recommendation: The stock of BFC closed at $0.088 and is trading at the lower band of its 52-week trading range of $0.047 to $0.135.As per ASX, the stock of BFC gave a positive return of 53.85% in the past one month.The company expects competition in FY21 milk supply to remain strong and targeting a further increase in milk supply to the factories for FY21, depicting its robust strategic growth plan. Considering the aforesaid facts, current trading levels, 1HFY20 results, high debt and recent price movements, we have a watch stance on the stock at the closed price of $0.088, down 12% as on 12 June 2020.

 
BFC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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