Get ready for the Food Boom

Bellamy’s Australia Ltd (ASX:BAL) has skyrocketed, but these companies could be next

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The phenomenal run-up in the share price of baby and infant formula producer Bellamy’s Australia Limited (ASX: BAL) has captured the market’s attention.

From listing at $1.00 in August 2014, fortunes have been made with the share price rising above $10 yesterday. Much of the demand for the company’s products is due to two main features. It’s Australian-made, which represents high quality, and organic, so customers know it’s not jammed-packed full of chemicals and artificial products.

For Chinese consumers that have already faced a number of scandals involving contaminated milk or baby formula since 2008, the clear choice is to buy a high-quality product – no matter the cost.

But investors might be looking at Bellamy’s share price of around $10 and wondering, “Are shares still good value?” Sure, the company is growing enormously fast, but it is trading on a trailing P/E ratio of 63.5x according to Commsec.

If that scares investors away, there’s a virtual smorgasbord of Australian food and produce companies that could also benefit from China’s emerging middle class and growing Asian demand for high-quality food products.

Here’s a selection of ASX-listed food producers listed by market cap size…

Company P/E Market cap ($m) Sector
Blackmores Limited (ASX: BKL)      47.2           2,858 Vitamins
Graincorp Ltd (ASX: GNC)      60.3           1,845 Grain, malt & oils
Bellamy’s Australia Ltd (ASX: BAL)    100.8               926 Baby formula
Bega Cheese Ltd (ASX: BGA)      68.1               842 Dairy
Australian Agricultural Company Ltd (ASX: AAC)      80.6               773 Cattle & beef
Costa Group Holdings Ltd (ASX: CGC)    125.9               753 Fruit and veg
Select Harvests Limited (ASX: SHV)      12.0               708 Almonds
Tassal Group Limited (ASX: TGR)      12.2               608 Seafood
Warrnambool Cheese & Butter Factory Co. (ASX: WCB)      12.1               555 Dairy
Freedom Foods Group Ltd (ASX: FNP)        8.4               534 Cereals & muesli
A2 MILK FPO NZ (ASX: A2M)           –               510 Dairy
FONTERRA ORD UNIT (ASX: FSF)           –               479 Dairy
MG Unit Trust (ASX: MGC)           –               475 Dairy
Vitaco Holdings Ltd (ASX: VIT)           –               427 Vitamins
Ridley Corporation Ltd (ASX: RIC)      19.9               422 Animal foods
Webster Limited (ASX: WBA)      22.5               414 Onions and walnuts
Huon Aquaculture Group Ltd (ASX: HUO)      19.1               350 Seafood
Patties Foods Limited (ASX: PFL)      80.0               164 Frozen produce
Capilano Honey Ltd (ASX: CZZ)      19.7               155 Honey
Clover Corporation Limited (ASX: CLV)           –                 63 Food additives
Vita Life Sciences (ASX: VSC)      16.0                 61 Vitamins
Clean Seas Tuna Limited (ASX: CSS)      14.1                 57 Seafood
FFI Holdings Ltd (ASX: FFI)      15.0                 34 Cooking products
Farm Pride Foods Ltd. (ASX: FRM)        6.0                 28 Eggs and egg products
Buderim Ginger Ltd. (ASX: BUG)      93.5                 27 Ginger
Australian Dairy Farms Group (ASX: AHF)           –                 27 Dairy

Source: CapitalIQ

As you can see from the table above, quite a few companies are trading on very high multiples, either because they are expected to grow significantly in the next few years, or the prior year’s earnings were much lower than the market thinks the company is capable of producing.

The Food Boom

The good news is that these companies are potentially the ‘iron ore miners’ of the future. Now the resources boom has officially ended, demand for Australian-made or sourced products such dairy, tuna, salmon, nuts, fruit and vegetables could soar, much like demand for baby formula and vitamins already has. With a growing Asian middle-class clamouring for high-quality produce – Australia is perfectly positioned and investors can jump on board too.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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