The Primary Opinion Ltd (ASX: POP) share price has certainly had a stunning start to the week.
In afternoon trade its shares have emerged from their trading halt and are 31% higher at 4.2 cents.
This morning the company, headed by former Bellamy’s Australia Ltd (ASX: BAL) CEO Laura McBain, announced that it has successfully raised $43 million at 3 cents per share in order to fund the acquisition of B.-d Farm Paris Creek Pty Ltd (Paris Creek).
Primary Opinion has agreed an equity price of $34 million in cash and shares to purchase the leading biodynamic-organic dairy products company.
A further $7.8 million will be used to repay Paris Creek’s existing bank facilities, with the remaining balance of up to $6.7 million (Including up to $2 million to be raised via a share purchase plan) to be used to fund the costs of the raising, provide working capital, and fund further investment in the business.
According to the release, Paris Creek has been growing its revenue a strong rate for a number of years and recently posted revenue of $19.8 million for FY 2017. This prices the transaction at 2.1x sales including debt, which I feel is great value.
The good news for shareholders is that this growth looks set to continue in the future. Strong demand for its products led the company to recently upgrade its production capacity from 10 million litres to approximately 30 million litres.
Should you invest?
Overall, I think this is a positive move by Primary Opinion that will complement its 48% stake in Maggie Beer’s product range.
If Laura McBain can grow this small-cap company to just a fraction of the size of Bellamy’s then shareholders will do very well from it.
While I’m not ready to make an investment just yet, I do think Primary Opinion will be one small-cap share to watch in 2018.
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.