Main menu
Edison Group
  • Home
  • Equities

    Equities

    View All Equities

    Equities by Sector

    Lepidico

    MCap

    AUD29m

    Last close

    AUD0.00

    ▲ 0.00 (50.00%)

    Pharnext

    MCap

    1m

    Last close

    EUR0.10

    ▲ 0.03 (42.86%)

    MGI – Media and Games Invest

    MCap

    EUR235m

    Last close

    EUR1.50

    ▲ 0.35 (30.21%)

  • Sectors

    Sectors

  • Investment Strategy

    Investment Strategy

    View All

    Latest

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

Oceania Natural — Taking control

Oceania Natural — Taking control

Oceania Natural (ONL) is an early-stage New Zealand company involved in producing and distributing natural food and diet supplements. ONL sources products from New Zealand and the Pacific Islands and sells both domestically and into its key market, the People’s Republic of China. Having listed in March 2016, ONL has spent its first year on the NZX actively taking greater control of its routes to market and building for future growth.

Analyst avatar placeholder

Written by

Oceania Natural

Taking control

Consumer goods

NXT Company Spotlight

2 June 2017

Price

NZ$1.40

Market cap

NZ$37m

Share price performance

Share details

Code

ONL

Listing

NXT

Shares in issue

26.2m

Business description

Oceania Natural is a producer, distributor and reseller of natural food and supplement products sourced from New Zealand and the Pacific Islands, sold predominantly into the People’s Republic of China. Its chief products are manuka honey and related products, Noni juice and dietary supplements.

Bull

■

Tapping into demand for clean NZ products.

■

Huge market potential in China.

■

Board has strong experience in consumer products companies.

Bear

■

Price competition.

■

Costs of establishing position in Chinese market.

■

Small player competing with large incumbents.

Analysts

Paul Hickman

+44 (0)20 3681 2501

Sara Welford

+44 (0)20 3077 5000

Oceania Natural (ONL) is an early-stage New Zealand company involved in producing and distributing natural food and diet supplements. ONL sources products from New Zealand and the Pacific Islands and sells both domestically and into its key market, the People’s Republic of China. Having listed in March 2016, ONL has spent its first year on the NZX actively taking greater control of its routes to market and building for future growth.

A year of strategic transition

In its first year as a quoted company, ONL took fundamental steps to reposition itself for growth in its key Chinese market. Responding to current trading conditions, it has formed subsidiaries in Hong Kong and Wuxi City. Working with co-investors, it is developing sales channels based on its own distributor networks.

Results reflect repositioning for growth

The unaudited FY17 net loss after tax was NZ$0.94m (FY16: net profit NZ$0.18m), on sales of NZ$2.4m (FY16: NZ$3.4m). Although total revenue exceeded the KOM target of NZ$2.2m, it included a “one off” sale to a distributor of NZ$0.6m at a reduced margin. Gross margin for the year was 26%, below FY16 and the KOM target (both 40%). In addition, costs reflect the fundamental actions the company has taken in the period, including the establishment of two subsidiary companies, a promotional programme to establish its distribution network, and anti-counterfeiting measures based on an app that can verify the product label.

FY18 KOMs reflect new sales channel structure

Reflecting the changes in its sales channels, ONL is re-analysing the revenue split in its Key Operating Milestones (KOMs) between New Zealand sales and overseas sales, rather than between direct and distributor sales. For FY18 it targets 14.5% revenue growth to NZ$2.8m, but at a 4% lower gross margin of 22%.

Valuation: Remains higher than established peers

We compare the market valuation of ONL’s sales with those of peers in Australia and New Zealand with similar operations, with the proviso that these are well-established companies at a more mature stage of their lifecycles. The average EV/sales multiple of this group is 1.8x. ONL’s EV/sales multiple is much higher: on reported total sales for FY17 it is 15.3x, while on its KOM for FY18 it is 11.1x.

Historical performance

Year
end

Revenue
(NZ$000s)

EBITDA
(NZ$000s)

EBIT
(NZ$000s)

NPAT
(NZ$000s)

Net cash
(NZ$000s)

Net assets
(NZ$000s)

03/15

1,512

45

20

1

4

(65)

03/16

3,351

305

276

183

(736)

1,874

03/17

2,429

(865)

(911)

(936)

452

5,260

Source: ONL

Oceania Natural coverage is provided through the NXT Research Scheme

Preliminary final results for year ended March 2017

Based on unaudited results, ONL delivered a FY17 net loss after tax of NZ$0.94m, compared with net profit after tax of NZ$0.18m in FY16. The result was delivered on sales of NZ$2.4m, which was 28% lower than in FY16. However, those sales exceeded the key operating milestone (KOM) targeted sales of NZ$2.22m, which had been restated in January 2017 in response to tougher trading conditions in China.

Exhibit 1: Oceania Natural FY17 vs FY16

NZ$m

FY17

FY16

Revenue

2.43

3.35

Cost of sales

(1.79)

(2.01)

Gross Profit

0.64

1.34

Gross profit margin %

26%

40%

EBITDA

(0.87)

0.31

EBIT

(0.91)

0.28

PBT

(1.04)

0.25

NPAT

(0.94)

0.18

EPS ( c )

(3.85)

0.89

Weighted shares in issue (m)

26.14

20.61

Source: ONL

Gross margin was 26%, against 40% both in FY16 and in the KOM target, where it had not been restated. As noted in the company’s 30 March 2017 interim update, the results included a “one off” sale of manuka honey to a distributor for NZ$0.6m at a reduced margin. This resulted in a boost to distributor sales in Q4 but with a margin impact in that quarter.

Administrative costs rose by NZ$0.7m compared with FY16. The background to this is explained by actions that the company has taken to facilitate future growth of ONL products within local and overseas markets:

■

In July 2016 it raised HK$19.5m to form a Hong Kong subsidiary, Oceania Natural Asia Limited (ONL Asia), to accelerate ONL’s distribution networks in China.

■

ONL has established operational headquarters in mainland China with Oceania Natural (Wuxi) Co Limited (ONL Wuxi) situated in Wuxi City. This is the base from which ONL intends to grow its distribution networks into new Chinese provinces.

■

The company is developing new sales strategies to accelerate its sales in China. In particular, it has focused on building its own distribution networks, to expand into new regions extending beyond previous independent distributor agreements. This initiative, partnering with investors in ONL Asia, has involved a promotional programme to introduce ONL products to their existing client networks.

ONL has taken action to protect itself against the growing counterfeiting threat affecting manuka honey. Through an agreement with China’s largest insurer, Property and Casualty Company (PICC), it has developed a new mobile scanning authentication application, TrustONL. All labels for ONL products sold in China are produced by PICC and can now be verified when scanned through the social media app WeChat.

Manuka bonds

In August 2016 the company introduced a new form of debt securities, Manuka Bonds. These are secured on barrels of manuka honey purchased with the investor’s subscription for a period of 12-18 months, at a fixed interest rate of 8% pa, payable quarterly. Wholesale investors have invested NZ$620k during the period, which was instrumental in funding an increase in ONL’s bulk manuka honey inventory. This forms the bulk of the increase in inventory of NZ$0.7m to NZ$1.5m at March 2017.

Key operating milestones for FY18

Reflecting the changes in its sales strategy going forward, ONL has revised the focus of its Key Operating Milestones. As described above, following the establishment of the China subsidiary, Oceania Natural Wuxi Limited, the company is taking closer control of its sales channels by developing its own distribution networks, working with its partners who are co-investors in its subsidiary ONL Asia.

As a result management believes that the previous sales split total sales between direct and distributor sales is no longer appropriate; a more appropriate analysis is between New Zealand sales and overseas sales. This is therefore the basis on which the FY18 KOMs have been presented:

Exhibit 2: FY18 key operating milestones

NZ$000

FY17 actual

FY18 KOM

Change (%)

Total sales

2,429

2,780

14.5

New Zealand sales

308

376

22.1

Overseas sales

2,121

2,404

13.3

Gross margin (%)

26

22

(4)

Source: ONL

ONL management comments that it has taken a conservative approach in setting sales targets for manuka honey. While dependence on manuka honey has declined, ONL will continue to position itself as a food and beverage company, primarily sourcing products from within New Zealand and from the Cook Islands for Noni Juice; it will continue to increase the product range in order to meet the changing demand from China. China is ONL’s key market, although during the year ONL also started exporting its products to Japan, Singapore, South Korea and Taiwan.

Valuation: Peer comparison

ONL’s listed peers are predominantly Australian and New Zealand honey and health products companies. They are well-established companies at a more mature stage of their lifecycles. Among those peers, we note that multiples at Comvita are negative in its year ended June 2017 as a result of unusual current issues affecting sales channels into China combined with an exceptionally poor harvest in 2016/17. Comvita’s management has stated that it believes that its extremely poor season is unlikely to impact future profitability. As a result (and despite some similarities between Comvita and ONL in relation to sales channels), we have substituted FY18 consensus forecasts in our peer table below:

Exhibit 3: Peer comparison based on 12-month forward consensus

Company

Country

Currency

Price

Market
cap (m

P/E
(x)

EV/sales
(x)

EV/EBITDA
(x)

EBITDA
margin (%)

Operating
margin (%)

Blackmores

Australia

A$

103.5

1,783

28.3

2.7

18.4

14.9

13.5

Capilano Honey

Australia

A$

14.7

139

13.5

1.1

9.4

11.9

10.5

Comvita

New Zealand

NZ$

5.7

240

20.2*

1.7*

11.8*

14.0*

9.8*

Average

 

721

20.7

1.8

13.2

13.6

11.3

Source: Bloomberg. Note: *FY18 consensus forecasts substituted. Prices as at 29 May 2017.

The average EV/sales multiple of the group of 1.8x is well below the EV/sales multiple implied by ONL’s current market capitalisation. With a market capitalisation of NZ$37m and net cash of NZ$0.5m at 31 March 2017, the EV/sales multiple on ONL’s actual sales for FY17 is 15.3x, while the EV/sales multiple implied by ONL’s KOM for total FY18 revenue is 11.1x.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
This report has been commissioned by NZX Limited (“NZX”) and prepared and issued by Edison Investment Research (NZ) Limited (“Edison”). This report has been prepared independently of NZX and does not represent the opinions of NZX. NZX makes no representation in relation to acquiring, disposing of or otherwise dealing in the securities referred to in this report.

All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however neither NZX nor Edison guarantees the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in this report may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Australia and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. This research is distributed in the United States by Edison US to major US institutional investors only. Edison US is not registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison US does not offer or provide personalised advice. This research is distributed in New Zealand by Edison). Edison is the New Zealand subsidiary of Edison Investment Research Limited. Edison is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. The distribution of this document in New Zealand is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the New Zealand Financial Advisers Act 2008 (FAA) (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. Edison publishes information about companies in which we believe our readers may be interested, for informational purposes only, and this information reflects our sincere opinions. This report is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, this report should not be construed as a solicitation or inducement to buy, sell, subscribe, or underwrite any securities referred to in this report. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. Edison has a restrictive policy relating to personal dealing. Edison does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, estimates of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. To the maximum extent permitted by law, NZX, Edison, either of their affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.

RNTS Media — Taking its divisional name, Fyber

Reflecting the closer integration of its assets, RNTS will rename to Fyber. Revenue growth of 17% in Q1 falls short of full-year targets but is expected to accelerate as the year progresses and management has reiterated its full year targets of revenues over €280m and EBITDA over €3m. Putting in place additional financing would lift a significant overhang on the shares.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free