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Why the Jatenergy Ltd share price has rocketed higher today

The Jatenergy Ltd (ASX: JAT) share price has returned to trade on Thursday with a surge higher.

In late morning trade the energy-cum-infant formula company’s shares are up over 14% to 16 cents.

Why are Jatenergy’s shares on fire?

Jatenergy’s shares were placed in a trading halt on Tuesday while it prepared an announcement relating to a new acquisition.

This morning the company revealed that it intends to purchase a controlling interest in Sydney-based wholesaler, distributor, and exporter Green Forest International.

According to the release, Jatenergy will acquire 50% of the shares on issue in Green Forest for a cash consideration of $2 million and 40 million fully diluted shares in Jatenergy. In addition to this, a further earnout payment will be made to the vendors of Green Forest in a mixture of cash and shares based on its performance.

The cash consideration will be paid out of its existing cash reserves and the shares issued will increase the total outstanding to 628.8 million.

Which means that upon completion Jatenergy will have a market capitalisation of just over $100 million.

What is Green Forest?

Green Forest International is a wholesaler, distributor, and exporter of ANZ goods to the Hong Kong and China markets. It sells to more than 50 shops and pharmacies in Hong Kong and over 200 gift shops, duty free stores and daigou warehouses in Australia.

It exports products such as infant formula from A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) and health supplements from Swisse and Blackmores Limited (ASX: BKL).

As well as benefiting from this already growing and profitable business, I suspect management may look to leverage its network to sell their Golden Koala infant formula product.

Should you invest?

While this looks like a good acquisition by the company, its shares are still changing hands on lofty multiples. As a result, I would suggest investors hold off an investment for now and wait to see how things go over the next 12 months.

Instead, investments in a2 Milk Company and Bellamy’s may be more rewarding after their recent declines.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. 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 Scott Phillips.

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