SYDNEY Aug 28 A tiny financial services firm on
the Sydney bourse has unveiled plans to sell shares as it
re-lists as a dairy company, counting on investor interest to
develop an industry struggling to keep up with Asia's exploding
demand for milk, butter and cheese.
The stars are aligning for companies aspiring to enter
Australia's A$4 billion ($3.7 billion) dairy sector but which
lack the financial heft to wage an outright takeover of a big
producer. Offshore pension funds are now on the lookout to
acquire strategic stakes in the sector, as well as players in
the global dairy industry itself.
Six months ago, Saputo Inc took over Warrnambool
Cheese and Butter Factor Co Ltd after a very public
fight for Australia's oldest dairy producer. The Canadian
company views Australia as a platform to tap growing demand in
Asia's emerging markets.
"There's been a renewed interest in Australian dairy
assets," said Michael Harvey, a dairy analyst at Rabobank,
noting a significant portion of the interest is coming from
outside the industry.
"That's about managed money and superannuation funds wanting
to invest in agriculture, and they see dairy and Australian
agriculture as a great way to do that."
Hoping to ride on this rising wave of investor interest,
small-cap APA Financial Services Ltd will re-list as
Australian Dairy Farms Group this year. APA currently has just
two farms in Victoria state, but it plans to grow fast.
Dairy producers are looking to ramp up stagnant local
production in the face of Asia's fast-growing middle class,
which is expected to consume more Australian dairy as it
develops Western tastes while distrust of local food safety
Already China is the world's biggest dairy export market
with 1.5 million tonnes shipped in 2013, or 13.4 percent of
global imports. By 2050, Chinese appetite for milk-based
products may be so high the world's exporters may not produce
enough dairy to meet it, some forecasters warn.
"That's a big demand curve that's increasing, and processors
just can't get enough milk," said Michael Hackett, chairman of
APA Financial Services.
Within two years, Hackett, a financial services industry
veteran, wants ADF running, if not necessarily owning, 16 farms
producing 50 million litres of milk a year, from about 11
million litres currently.
Hackett aims to list ADF under its new identity on Oct. 1
after raising up to A$14.5 million. He will fund future
investments with a combination of new share issues and debt,
once the company has proven its mettle with its initial assets.
Interest in the company-to-be suggests investors believe in
its business model - essentially, selling unprocessed milk to
processors like Warrnambool. Commitments to buy ADF shares have
already reached A$8 million, above its minimum A$7.5 million,
according to Hackett.
"There's quite a lot of opportunity there and you're
starting to see some more investment in the Australian
processing sector along those lines," said ANZ rural economist
That opportunity has not yet been matched with the necessary
increase in production, he added.
Australian milk production has fallen about 20 percent in
the past decade from around 11.2 billion to 9 billion litres a
year because of drought, rising costs and industry deregulation
that effectively paid farmers to move on.
Even with farm-gate prices hitting a record A$0.50 a litre
last year, the country's milk production may grow just 2 percent
in the farming year to June 1, 2015, the Australian Bureau of
Agricultural, Resource Economics and Sciences says.
The result is an industry ill-equipped to meet demand but
facing significant potential rewards, both from domestic
processors who buy their product, like Warrnambool, and export
markets like Asia.
Investor demand for Australian dairy companies has risen
with expectations that - notwithstanding the impact of a new
Russian trade ban - those companies will benefit from increasing
export demand, takeover, or both.
Warrnambool shares more than doubled from September to their
closing high of A$9.475 on Jan. 23 when the takeover battle
reached its climax. The shares closed at A$8.13 on Wednesday.
Shares in Bega Cheese Ltd doubled in the seven
months to March 19, when they hit a closing high of A$5.62. On
Wednesday, the shares ended at A$5.06.
Industry group Dairy Australia said registrations for a
trade conference that it is hosting in September reached its
target three weeks before the event.
"Strength of interest... has exceeded our expectations and
includes a large delegation from China," the group said.
Former Warrnambool suitor Murray Goulburn Cooperative Co Ltd
(MG) confirmed to Reuters this week that it had received a A$20
million investment from an unnamed Scandinavian pension fund.
The cash bought the leases of nine dairy farms, adding some
30 million litres to its milk supply, which is about 39 percent
of the national pool, MG said.
The company this week posted a 30 percent jump in exports in
the year to June 30 to A$1.5 billion.
(1 US dollar = 1.0758 Australian dollar)
(Additional reporting by Colin Packham in SYDNEY; Editing by