Murray River Organics
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 27 January 2017, 3:12 PM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Murray River Organics – the world's largest organic dried vine fruit producer
Murray River Organics (MRG) is the world's largest vertically integrated organic dried vine fruit grower, producing sultanas, currants, raisins, muscats, clusters and fresh table grapes on 4,726 acres of owned or controlled farmland. Following the recent acquisition of two food distribution businesses, MRG has a growing portfolio of products including dried fruit, nuts, seeds, dried berries, chia seeds, prunes, dates, dried ginger, mango, quinoa, a range of coconut products and rice. These products are sold to 26 countries, with the greatest exposure to Australia, Europe, Asia (China sales are <2%) and the US.
Vine maturity underpins a strong earnings growth profile
In FY17, on a proforma basis, MRG is forecasting 50% revenue growth, 87% EBITDA growth and 94% NPAT growth. In FY17, MRG is incurring a lot of expense and capex without the associated earnings benefit which will flow through in future years. FY18 will benefit from the synergies of the food businesses (we forecast A$2m) and the cost savings from consolidating four facilities into one. MRG's production is expected to grow significantly as the current vines mature (improves vine yield) and additional acres are planted out. Cashflow conversion will also improve. Based on our forecasts, FY17 group tonnage rises from 9,817t to 14,091t by FY21 (+44% growth), EBITDA (including food businesses) increases from A$15.9m in FY17 to A$29.5m in FY21 (+86% growth).
Investment view
MRG's multiples drop away materially over coming years as the vines mature. Additionally, we expect that MRG will identify new acquisitions that complement the core business, as well as diversifying and broadening its product range.
MRG is leveraged to favourable industry dynamics. The global market for organic food is forecast to grow at a CAGR of more than 14% out to 2021 as consumers seek healthier foods. Significant barriers to entry exist as there are very few places in the world which can actually grow dried fruit and there is a long lead time in an orchard maturing. A lack of recent plantings globally and significant capital requirements restrict competition.
The key risk is execution given the company is doing a lot at once. Other risks include a falling dried fruit price, a poor season, the market power of the major retailers, an inability to pass on rising input costs, competition, loss of a major contract and the usual acquisition risks.
We initiate coverage with an Add recommendation.
More information
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Disclaimer(s): Analyst owns shares.
Morgans Corporate Limited was a joint lead manager to the IPO offer of shares in Murray River Organics Limited and received fees in this regard.
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