Thanks for the heads-up fourex.
I did some digging to get my hands on the citi report. Below are a few snippets. Unfortunately the tables don't copy and paste very well.
But they are forecasting $109.6M in Operating EBITDA and EPS of 25 for FY20 versus previous guidance of $77.2M and EPS of 17.
Between now and FY20, Cereals & Snacks up 46%, Plant Beverages up 46%, Diary Beverages up 152%, Seafood 4%, and Nutritionals up 70%.
Dairy Beverages is definitely their most exciting sector, especially with A2 product/labelling coming this year.
A healthy disruptor
Initiating coverage with a Buy, $6.70 target price — We expect Freedom Foods
to deliver a 3 year EPS CAGR to FY20 EPS of 71% driven by i) margin expansion
following a $300 million capital investment program combined with growth of higher
margin branded products; ii) growth in international markets, especially China,
across multiple products; and iii) the global shift towards healthier eating. Freedom’s
PEG ratio of 1.3x represents a 5% discount to Australian FMCG peers.
Substantial margin upside after material investment phase — We forecast EBIT
margins to expand ~745bps by FY20e. ~60% of our margin expansion is driven by
operating leverage following a $300 million capital expenditure program, ~30% by
investment into protein standardisation and fractionation, and ~10% by a mix shift
towards higher margin branded products.
Capex a leading indicator of demand — We estimate the additional accelerated
capex of $120 million will deliver a ROIC of ~20% (above the company’s 15%
target) and see it as a strong leading indicator of demand. Freedom Foods expects
its dairy volumes to increase more than 4x from 85 million litres in FY17 to 350
million litres in FY20e.
China represents a strong growth opportunity — Freedom Foods is well
positioned to benefit from Chinese consumers’ increasing preference for imported
foods from ‘clean’ countries such as Australia. Freedom expects 16% of its FY18e
sales to come from China, with the company having success on its Tmall flagship
store and its distribution partner investing US$100 million over the next 3-5 years.
Our proprietary Tmall analysis indicates that Arnold’s Farm Muesli, Freedom Foods
Porridge and Vitalife UHT milk are the most popular products.
Increasing international focus on health food — Freedom’s focus on healthy
food and beverages places the company in a prime position to disrupt larger FMCG
competitors which are arguably weighted down by less healthy legacy products.
Freedom continues to focus on new product development, having just launched A2
protein UHT milk. We expect the company to achieve shelf space gains from the
~40 new branded products to be launched from May 2018.
We initiate coverage of Freedom Foods with a Buy rating and a $6.70 target price.
Freedom Foods is a vertically integrated food and beverage manufacturer focusing
on health foods. We forecast Freedom Foods to deliver a 3 year EPS CAGR of 71%
driven by i) margin expansion from recent substantial capital investments and
growth of higher margin branded products; ii) international growth, especially in
China, across multiple products; and iii) the global shift towards healthier foods.
In this report, we explore three key themes:
Theme 1: Margin upside from recent substantial capital investments
Theme 2: International markets to drive growth
Theme 3: Favourable shifts in consumption patterns towards health foods
Reaping the benefits from recent capital investment phase
We forecast Freedom Foods’ EBIT margins to expand by ~745 bp over the next 3
years primarily driven by benefits operating leverage following a $300 million capital
expenditure program in new manufacturing facilities and the company’s increasing
focus on branded products and higher margin categories. Further, Freedom Foods’
investment in protein standardisation and fractionation should help the company
reduce its COGS, allow the company to enter new product categories and enable
the sale of high margin protein components to third parties.
International markets to drive growth
We see international markets, especially China and South East Asia, as a
substantial medium to long-term growth opportunity for Freedom Foods. The
company is well positioned to benefit from Chinese consumers increasing
preference for imported foods from ‘clean’ countries such as Australia. Unlike other
Australian FMCG peers, Freedom Foods’ China sales are not dependent on a
single product or the daigou. The company has been selling UHT milk overseas for
~5 years and is now seeing growth in its branded milk products as well as cereal
and snacks, aided by cross border eCommerce.
Favourable shifts in consumption patterns towards health foods
Freedom Foods is well placed to capitalise from increased consumer demand for
health foods through its range of non-dairy beverages (e.g. soy and almond milk),
cereals and snacks and nutritional products. Freedom Foods has recently
accelerated new product development, having just launched A2 protein UHT milk
and plans for ~40 new branded products to be launched from May 2018.
