The New Criterion

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Two new IPOs made it to the starting line this week, with both testing investor appetite for healthy products.

Oliver’s Real Foods

The health food evangelist behind this impending listing faces a (literally) heavyweight task: weaning truckies and travelling families at roadside stops from fried dim sims to chia pods, pita pockets and green beans served in a French-fries style packet.

Adopting the “build it and they will come” ethos, Oliver’s founder Jason Gunn opened his first pit stop at Wyong North in New South Wales in 2005. The local tourist bureau had vacated the premises, but the head lease was assigned to McDonald’s, which – naturally – stipulated that a rival fast food chain could not fill the void.

Perusing the document, Gunn discovered that a fast food chain was defined as having three outlets or more. With the loophole detected, the lease was inked and the first Oliver’s – the world’s only certified organic fast food chain — opened for business.

The company then secured further long-term sites after BP evicted Subway and put all its highway servos to tender.

With a current spread of 22 outlets and revenue of $21 million, Oliver’s is tapping investors for funds to grow to 45 outlets over the next two years.

With the minimum $9 million in the can, the IPO closed on Friday ahead of a planned listing on June 21.

Initially, institutional investors weren’t hungry: the deal only got away after the vendors agreed to reduce the offer price from 30 cents to 20 cents a share. But retail take-up was strong, especially from loyal customers hoping the offer is as tasty as the food.

One reason for the revision was the valuation comparative provided by the mooted IPO of Craveable, which owns the Red Rooster and Oporto chicken joint names here.

Think of Oliver’s as the healthy entrée to the big one.

At the original 30 cents, the Oliver’s offer was pitched on a multiple (enterprise value to EBITDA) of nine times. This is based on the prospectus guidance for 2017-18 of EBITDA of $4.76 million on revenue of $42 million, compared with the forecast current year loss of $1.9 million.

At 20 cents a share, this falls to 8.8 times. While no formal guidance for 2018-19 was offered, this should fall further as the new stores ramp up.

The Craveable offer reportedly is being valued at $450 million to $530 million and will be struck on a multiple of around 12 times. So while the Craveable IPO ostensibly is more expensive than Oliver’s, even at the latter’s original price, the premium is understandable given Craveable is the more substantive and established player.

Arguably, though Oliver’s has more scope to supersize given its modest presence in the first place.

For a nation fond of our burgers and chicken nuggets, we’ve had relatively few listed fast-food exposures beyond Dominos and Collins Foods, owner of KFC and Sizzler outlets in Queensland and Western Australia.

Oliver’s is a niche play in comparison but the New Criterion is impressed by its ability to divert weary travellers away from the high-fat siren call of adjacent McDonald’s and KFC outlets.

The eastern seaboard arterial roadside market is estimated at $1 billion a year, which means that Oliver’s has a two per cent to four per cent chunk and plenty of room for profitable growth. Oliver’s also claims to serve two million customers annually, if only for an organic fair trade cappuccino.

Oliver’s by the way bears no relation to Jamie Oliver, fellow fresh food evangelist (as long as the stuff is bought from Woolworths).

Eagle Health Holdings

It’s tempting to view this one as a miniature Chinese version of nutraceuticals group Blackmores or the privately owned Suisse – because it is.

There’s a key difference as well: Blackmores and Suisse sell their product to China predominantly online, while Eagle Health distributes its wares purely by bricks and mortar channels, via 250 pharmacies and supermarkets around its base at Xiamen in the capacious nation’s south.

Being China domiciled, Eagle Health faces none of the cross-border regulatory issues besetting foreign suppliers.

Eagle is following the well-worn path of Chinese aspirants listing on the Australian Securities Exchange, with hitherto mixed results. Following a $10 million investment from a South African investor, Eagle Health last week was on track to fill its minimum subscription of $25 million, with the prospect of the maximum $30 million being obtained.

This will value the group at $125 million to $130 million.

In comparison, Blackmores sports a $1.7 billion market cap, while the China-focused infant nutrition group Bellamy’s is valued at $280 million.

Founded six years ago, Eagle has always been profitable, reporting a $15.8 million net profit in calendar 2016 on revenue of $84 million. Turnover has grown at a compound annual rate of 29 per cent and net profits at 35 per cent over the last three years.

In common with its Chinese peers, Eagle is cash rich with little debt and intends to pay dividends.

As is the norm for a Middle Kingdom play, Eagle has a dominant shareholder: founder Zhang Mingwang, his missus Tina and other related parties will account for 64 per cent of the register post-IPO.

In a sense Eagle strives for the best of both worlds: the distribution benefits of being on the ground in China and the ability to source clean and green Australian products.

Wisely, no forecasts are provided, but based on 2016 earnings Eagle is being offered on an earnings multiple of six times. This compares with 24 times for Blackmores, 17 times and 13 times for honey exporter Capilano Honey.

Mainland China ASX listings to date – and there have been dozens – have been ascribed the China Discount. This is a reference to the opaque and complex structures of most of the offerings and the difficulty – perceived or otherwise – of getting money out of the joint.

Eagle claims a deeper than usual Australian presence, with former Howard-era sports minister and Sinophile Andrew Thomson chairing the board. Another non-executive director, Rod Hannington, has wide marketing experience at consumer goods outfits including Novartis and Mondelez.

Close to 50 per cent of Eagle’s products are weighted to amino acid and protein lines that enhance the immune system, while throat lozenges (made from exotic ingredients such as honeysuckle, malva nuts and loquats) account for a further 19 per cent.

Others are ginseng and enzyme derivatives and dendrobiums that “enhance physical fitness, improve hypoxia tolerance, improve gastrointestinal function, lower lipid and blood sugar, nourish the skin and improve eyesight.”

Clinical claims for these assertions are sparse. But given the Chinese have been using such pills and potions for thousands of years, at least they won’t kill you.


Tim Boreham is editor of The New Criterion

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