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Desknote: Pure Foods Tasmania (PFT.AU $0.58)


Bringing Tasmania to a plate near you. 

I was lucky enough to get a handful of PFT for clients in the IPO ($0.20), following a site visit and meeting with management back in 2019. I have to declare I am a big fan of everything Tassie following recent visits, and I have tried to take the rose coloured glasses off for this note. I originally thought it would do well but, but go through the motions for the first 6 months out from the prospectus date. I was right it would do well, but wrong on how much they might achieve early on. Despite the 200% odd return, I think it is well worth understanding more about the business and potential catalysts. 

Michael Cooper (MD) held a webinar yesterday, detailing where they have come from and where they are going. So if you don't want to read down, click into the 20 min recording (he explains it better than I)

Background

  • 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 foundation investors are very supportive of Michael and the companies vision.


Potential Catalysts.

 
  • Organically will 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 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 will 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 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 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 to what is in the market. 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 to be added shortly delivered fresh.
  • Beverages – given Michaels background is on the radar – think some of the world’s most pure water 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.

Peer Group


The following companies are perhaps most relevant. Numbers taken from the half-year reports to June 30 2020.

Attachments/Links

 


Best, 
Tom


Disclosure - I own shares in PFT. These shares have been purchased on the market. I have also been accumulating shares for clients. I have not been paid any fees by PFT or any of their associated parties. 

This is not a research note, not personal advice or a recommendation to buy the Company mentioned (PFT) and PFT should be considered high risk and very speculative. Many risks are not discussed in this note. See disclosure below. 


Thomas Schoenmaker
Head of Wealth Management
Director

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