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|
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.