fnp is a fascinating investment because it doesnt act like most...

fnp is a fascinating investment because it doesnt act like most other listed companies.

most companies - if raising capital for the 2nd time in around a year and raising 200mill which represents 20% dilution of equity to existing investors - would get a backlash from investors and the sp would fall quickly to the cr price.

fnp has not had this reaction for two reasons in my opinion:
1) its shares are tightly held with arrovest owning 58% prior to the cap raise and 54% after the dilution by the 100m institutional placement, but it may be closer to 55%+ after they take up any unused excess retail entitlements. they coughed up a juicy $60mill out of their own pockets to participate in the CR, and they have better inside knowledge of the companies future than any of us could hope for, so it is the ultimate vote of confidence by the board and a great buy/ hold signal for us retail investors.

2) the growth outlook is so strong across multiple product categories and geographic regions that investors understand the logic of accelerating capex and jv/ m&a spending to capitalise on the current momentum into growing markets, considering the following points:
i) plant based drinks are a massive future growth market with >20% cagr and trends through social media from influencers eg celebrities as well as mainstream media coverage/ company marketing of the benefits in people with irritable bowel, dairy intolerance, etc. i am a doctor who is not particularly convinced due to the weak scientific basis behind these products on gut health, however i can personally see that my wife has switched to oatmeal milk and loves it, my sister usually drinks almond milk, my mother in law drinks soy and almond milk, etc etc.
ii) uht kids milk sales into china are doubling year on year from 30mill to 60mill units and they are still in early phase of growinng their distribution footprint in partnership with JLL and fnp manufacturing already cant keep up with demand,
iii) protein foods are on trend and fnp can optimise margins / have a competitive pricing edge via vertical integration due to controlling their plant and dairy inputs,
iv) specialist barista products are genius in the ultra snobby and massive australian barista coffee market where plant based milks specially designed to work well with coffee/ heating are much needed and the product design is very appealling
v) healthy kids snacks are high margin and have high levels of brand loyalty from kids once they like the taste which means parents will buy them every time they grocery shop for years (speaking from experience as a parent), so i suspect this product category will be very profitable as it is currently a high margin sector with a relatively narrow range of products on offer;
vi) infant formula into china is competitive but fnp can exploit brand recognition from existing products plus they are working through a local jv partner with deep pockets for marketing plus they can potentially use the a2 trump card in future although they havnt confirmed this play to date.

they state explicity that they are confident the CR capex will return a >15% ROIC within 18-24 months and i believe it, so ill be taking up my entitlements and watching with great interest as a series of positive announcements are made over the remainder of 2018. i expect the following:
1) continued rapid revenue growth guidance into fy 19 and fy20
2) use of CR funds for further capex such that operating margins are improved through fy 19 and 20 and ebitda/ npat starts to pick up
3) the launch of 40 new products as per the CR presentation in addition to the recent releases
4) announcement of the finalisation of the JV agreement with a large chinese partner (?JLL) to accelerate the distribution and marketing of infant formula into china, pending approval by the CFDA
5) further small eps accretive and strategic acquisitions seem highly likely.
6) the launch of the a2 uht milk products into australia.
and more that i cant even predict im sure.

i kind of like owning fnp because they are so difficult to predict and so difficult to analyse that you just have to sit back and trust management and let them keep on kicking goals and getting you excited with their amazing vision and execution. i generally run a fairly tight prtofolio in terms of needing to understand the business, financials metrics and seeing that the numbers stack up on a valuation basis, but fnp you just have to sit back and watch with a beer and a bag of chips while they do their thing for your benefit.