Why the Keytone Dairy (ASX:KTD) share price is up 8% today

The Keytone Dairy Corporation Ltd (ASX: KTD) share price is rocketing today due to a deal with Coles Group Ltd (ASX: COL).

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The Keytone Dairy Corporation Ltd (ASX: KTD) share price is on fire today, up 8.12% to 26 cents at the time of writing. Keytone shares closed at 24 cents on Friday afternoon, but opened at 26 cents this morning and were up to 28 cents at one point, a rise of more than 16% at the time.

Despite this strong showing today, Keytone isn't having a great year in terms of share price performance. Keytone shares remain down 33% year to date on this pricing, and down more than 40% from the highs of 46 cents we saw back in mid-April.

So why is this dairy company seemingly in investors' good books today?

Why the Keytone share price is surging today

Today's Keytone share price performance is most likely due to an ASX release the company provided just before market open this morning. In this announcement, Keytone revealed it has inked a significant deal with major supermarket operator Coles Group Ltd (ASX: COL).

Keytone will provide private-label goods to Coles that will be sold under Coles' 'in-house' white-label brands under the agreement. The products to be provided under this arrangement are "multiple powdered SKUs [stock keeping units] in various pack formats, flavours and sizes". Keytone told the markets the deal is a result of the company's "first-class manufacturing facilities and rigorous health and safety standards, highly responsive and innovative new product development team and the growing strategic relationship between Keytone and Coles".

Production of goods under the deal is expected to commence "late in the first quarter of 2021", with the products set to appear in Coles' stores "from the second quarter of 2021". The company tells investors the "term of the arrangement has not been specified". However, Keytone "anticipates the term will be longer than an initial 12 month period, implying a gross sales value multiples higher than the annual value".

The company forecasts the deal will result in $5.2 million worth of sales per year.

Keytone CEO, Danny Rotman, had this to say on the announcement:

This is a fantastic and significant win for the business. It highlights the growing awareness of the Keytone brand of quality and our credentials across the broader health and wellness sector… The calibre of the client base is becoming increasingly robust and we look forward to supporting the growth of our diversified customer base through our state of the art facilities and first-class product development and operations teams.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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