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Could this IPO be the next A2 or Bellamy’s?

Goat milk infant formula manufacturer Nuchev has announced plans for an IPO. Targeting a $40 million capital raise, Nuchev plans to expand rapidly and is focused on the Chinese market. Nuchev produces, markets and distributes a range of goat milk infant formula products to consumers in Australia and Asia under the Oli6 brand.

Nuchev’s Oli6 products are currently available online, in chemists (including Chemist Warehouse stores) and Coles supermarkets. In June, the Australian Financial Review (AFR) reported Nuchev had captured more than 10% of the total infant formula market in Australia, with a three-fold increase in sales growth.

CEO and founder of Nuchev, Ben Dingle has extensive experience in the dairy industry – he co-founded New Zealand’s Synlait Milk, which manufactures the A2 Milk Company Ltd (ASX: A2M)’s infant formula.

Oli6 products are manufactured in Victoria using goat milk imported from the Netherlands. Goats milk has higher levels of certain vitamins and minerals than standard cow’s milk, as well as higher levels prebiotics that may aid the digestion process.

Nuchev conducted a $30 million capital raise in June with funds used mainly for marketing and brand building. According to an article published yesterday in the AFR, Nuchev is predicting an 89% increase in revenue in FY20, with significant sales into China via cross border e-commerce. China’s infant formula market is worth $22 billion and growing, driven by increasing disposable income.

Former market darling Bellamy’s Australia Ltd (ASX: BAL) saw its share price slide when new cross border e-commerce laws that took effect in January prevented the infant formula manufacturer from selling its organic products to the Chinese market. The company’s net profit fell by 49% in FY19 as a result. Bellamy’s is now the subject of a takeover by Chinese buyer Mengniu Dairy Company.

Shares in a2 Milk have dropped 28% from highs of $16.80 in August to around $12, also due to uncertainty around China. The dairy product supplier is fighting for market share in China through increased marketing spend in an effort to distinguish itself from competitors.

Nuchev initially launched in China in late 2016 so has also had to comply with the new, more stringent regulations. But Dingle believes the regulations work to the advantage of companies like Nuchev by weeding out less credible brands. The company is in the process of expanding their distribution footprint across China, currently focusing on e-commerce platforms. Having launched in Hong Kong in June, Nuchev is also considering expanding to Taiwan, Japan, South Korea, Malaysia, Indonesia, Thailand and Singapore.

Foolish takeaway

Nuchev’s final offer size and valuation won’t be finalised until next week following investor roadshows across Singapore, Hong Kong, Australia, and New Zealand. In the meantime, investors can consider if Nuchev is the goat to Bellamy’s or a2’s cow!  

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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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