Gluten and allergy free food specialist Freedom Foods Group Ltd (ASX: FNP) jumped 7% to $2.99 today after revealing it is interested in making a bid for New Zealand-based dairy business A2 Milk FPO NZ (ASX: A2M).
The Australian newspaper is reporting that Freedom Foods bidding partner is China's New Hope Dairy Group, which already has agreements and partnerships with Freedom Foods for dairy investment opportunities in Australia. Freedom Foods itself already has a substantial shareholding in The a2 Milk Company, which currently has a market value around $323 million.
The a2 Milk brand is reportedly the fastest growing milk brand in Australia on the basis that its milk does not contain the a1 milk protein that is common to nearly all other commercial milks. The product only contains the a2 protein which according to the company means it has additional health benefits and may be suitable for people intolerant to the a1 protein.
Freedom Foods Group itself is aiming to capitalise on the changing nature of the food industry in Australia and globally as relatively wealthy consumers demand healthier and more personalised food products. For example, foods that are gluten, nut, wheat and dairy free are must haves for an increasing number of consumers and now feature prominently in the supermarkets of businesses like Woolworths Limited (ASX: WOW).
To manufacture the foods Freedom needs supply chain capability, which explains its interest in diversifying into agribusiness as it attempts to build the networks required to meet its heady ambitions. The company is investing heavily in scaling up its North American operations and is now selling its milk products into the vast Chinese market.
In February 2015 the company launched its branded 'Australia's Own Kid's Milk' into China which is the first Australian milk product marketed specifically to the post-infant-formula toddler market in China.
Notably, another Australian company posting gangbusters sales growth in China on the back of organic baby food sales is Bellamy's Australia Ltd (ASX: BAL). The Tasmania-based business has more than tripled in value since hitting the ASX boards less than a year ago.
Freedom operates in an increasingly competitive but growing market and delivered 10% sales growth in the most recent half versus the prior corresponding period.
The company has a market value of around $433 million and for the six months ending December 2014 posted operating earnings of $6.3 million. This may seem low, but the business is heavily investing in long-term growth opportunities and looks worthy of a place on investors' watchlists.
Another couple of small-cap Aussie businesses are also growing into Asia and US markets with seemingly big potential to become the stars of tomorrow.
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