Oceania Natural (ONL) is an early-stage New Zealand company involved in producing and distributing natural food and diet supplements sourced from New Zealand and the Pacific Islands, and sold both domestically and in the People’s Republic of China. The company has announced that the board has approved a “one off” sale of manuka honey to a distributor at a reduced margin. As a result, operational performance is likely to vary by more than 10% from the targeted key operating milestones (KOMs) for the year to March 2017.
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Oceania Natural |
Variation from key operating milestones
Consumer goods |
NZX Company Spotlight
3 April 2017 |
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Oceania Natural (ONL) is an early-stage New Zealand company involved in producing and distributing natural food and diet supplements sourced from New Zealand and the Pacific Islands, and sold both domestically and in the People’s Republic of China. The company has announced that the board has approved a “one off” sale of manuka honey to a distributor at a reduced margin. As a result, operational performance is likely to vary by more than 10% from the targeted key operating milestones (KOMs) for the year to March 2017.
“One-off” sale approved
As we noted in our January 2017 Spotlight report, ONL removed Q4 manuka honey sales to Chinese distributors from its FY17 KOM targets after being unable to reach agreement on selling prices with those distributors. This followed an extended period of competitive discounting for manuka honey products in Chinese markets. The board has now approved a “one off” sale of manuka honey to a distributor at a reduced margin. The effect of this is a switch from the direct sales channel to the distributor channel with a net expected over-achievement against the targeted revenue for FY17, but at a reduced gross margin.
Distributor sales higher than target
Total revenue for FY17 is likely to be in the range of NZ$2.25 -2.40m, compared to the FY17 KOM target of NZ$2.22m, an increase of NZ$30,000-180,000. Within this, distributor sales are expected to increase by NZ$295,000-345,000 and direct sales to decrease by NZ$165,000-265,000 compared with the KOM targets. The changes in expected revenue are set out in Exhibit 1 on page 2.
Lower gross margin expected
Although the “one-off” sale agreement has the effect of increasing total revenue, it will result in a lower gross margin due to the change in sales channels. This is expected to be in the range of 26-32% compared with the KOM target of 40%.
Valuation: Share price implies 15-16x FY17e EV/sales
Since listing on the NXT on 31 March 2016, ONL’s share price has more than doubled, although it is now just over half its October 2016 high. The current price implies an EV/sales multiple of 10.8x FY16 sales and 15-16x the expected FY17e sales. This is well ahead of the 2.3x average of its well-established listed peers (see Exhibit 2).
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Historical performance
Source: Oceania Natural |
Oceania Natural coverage is provided through the NZX Research Scheme |
Expected outturn against key operating milestones (KOMs)
We set out below the expected outturn compared with the KOMs:
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Exhibit 1: Expected FY17 outturn against KOMs |
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NZ$000s |
KOM |
Current expectation |
+/(-) |
Total revenue |
2,220 |
2,250-2,400 |
30-180 |
Direct sales |
1,615 |
1,350-1,450 |
(165)-(265) |
Distributor sales |
605 |
900-950 |
295-345 |
Gross margin (%) |
40 |
26-32 |
(8)-(14) |
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Source: Oceania Natural, Edison Investment Research |
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Peer comparison
ONL’s listed peers are predominantly Australian and New Zealand honey and health products companies. They are well-established companies in more mature stages of their lifecycles. We note that multiples at Comvita are exceptionally high as a result of its own issues with sales channels into China combined with an exceptionally poor harvest in 2016/17.
Nevertheless, the average EV/sales multiple of this group of 2.3x (Exhibit 2) 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$1.4m at 30 September 2016, the EV/sales multiple on ONL’s actual sales for FY16 is 10.8x, while the EV/sales multiple implied by ONL’s range of expected FY17e revenue is 15-16x.
Exhibit 2: Peer comparison based on 12-month forward consensus
Company |
Country |
Currency |
Price |
Market cap |
P/E |
EV/sales |
EV/EBITDA |
EBITDA |
Operating margin (%) |
Blackmores |
Australia |
A$ |
112.9 |
1,945 |
28.3 |
3.0 |
18.4 |
17.8 |
15.9 |
Capilano Honey |
Australia |
A$ |
14.18 |
134 |
13.1 |
1.1 |
9.1 |
11.9 |
10.5 |
Comvita |
New Zealand |
NZ$ |
8.6 |
365 |
74.8 |
2.8 |
24.7 |
11.3 |
6.3 |
Average |
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39 |
2.3 |
17.4 |
13.7 |
10.9 |
Source: Bloomberg; Note: Prices as at 30 March 2017.
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Research: Financials
Socially responsible investment (SRI) is the buzzword in the financial industry today, but ÖKOWORLD (ÖWAG) is a pioneer with a 40-year history. ÖWAG is the parent company of a fund management group, an insurance broker and advisory service. Sustainable investment is ÖWAG’s mission, explained by its ‘profits and principles’ strategy. Funds are managed through a disciplined SRI process with a consistent track record, leading to strong rankings from major rating agencies and numerous awards. Management expects the strong brand and investment results to propel AUM beyond €1bn in 2017, cementing healthy margins and steady dividend growth for ÖWAG.