We’ve all tucked into an expensive, yet incredibly delicious Maggie Beer ice cream before, and there is no doubt we have all had our share of smashed avocado with a flat white in one of Melbourne and Sydney’s many respected cafes. Well, an investment in Long Table may offer a chance to profit from these trends.
Long Table has been around for some time, but is only just coming into its own as a ‘House of Brands’. The company is well known for being the 48% owners of the Maggie Beer brand, and recently agreed to purchase the remaining 52% for just $10m as it seeks to ramp up its sales growth. Long Table also owns a number of little- known, but growing brands including Saint David Dairy, which is a micro-dairy based in Fitzroy, Melbourne, and Paris Creek Farms, a bio-dynamic, organic dairy in South Australia. Through these acquisitions and business lines the company has delivered a near fully vertically integrated business model.
Leading the charge is Laura McBain, who left her lucrative position as CEO of Bellamy’s Australia, the infant formula producer, to run this fledgling company. Laura is well connected to the Tasmanian agricultural scene and the fact that someone of her experience and stature, not to mention the pay cut, would join a small company like Long Table, bodes well for the future.
As with Webster’s, the company is coming to the end of a period of transition after it appears too little attention was placed on the efficient operation and distribution of the Maggie Beer brand. Maggie Beer’s long-established career offers Long Table the ability to leverage off the respect she has in the public and industry, and the high quality synonymous with her name. The Maggie Beer brand spans various products, focused around home entertainment, including pate’s, pastes, jams, ice cream, and more recently cheese. Interestingly, Maggie’s recent book, a ‘Recipe for Life’, offers recipes that can help reduce the risk of dementia, and are likely to form part of an eat-at-home line to be offered by Long Table in the future.
Alongside Maggie Beer, is Saint David Dairy, located on St David Street in Fitzroy, Melbourne. The area is the heart of hipsters and the branding could not be more authentic. There is a proven trend that hipsters are willing to pay more for authentic products, and the business has been focused on supplying award winner butters, milks and yoghurts to Australian restaurants and independents for some time. Whilst only a small part of the business, the sector and revenue is growing (up 31% in the first half to $3.6m) via the corporate support of the Long Table Group. The gross margin is also strong at 61%. The final business is Paris Creek Farms, located in Meadows and producing a series of milk, yoghurt and cheese for the domestic market. As with Saint David, the brand is authentic, local and organic, branded ‘food for purists’, as management seek to capitalise on restaurants need to identify the source of their products and consumers wish to support smaller businesses. The company saw revenue fall 6% in the first half, delivered a gross margin of 42% and a loss of $1.8m as they reset their pricing across Australia.
The first half of the 2019 financial year has been a difficult one, involving a great deal of consolidation and corporate activity. Saint David was acquired during this period, Paris Creek was re-branded, and the Maggie Beer purchase was finalised. The highlights came from Paris Creek, which now supplies over 500 stores and has began a rollout with Metcash, whilst Maggie Beer sales are expected to deliver earnings of at least $1.7 to $1.9m. The company announced a $13m capital raise to fund the Maggie Beer acquisition, with only $4.0m being raised placing pressure on the business in the short-term. For the first half Group Revenue was $23.1m, with $11.5m coming from Maggie Beer and $8.0m from Paris Creek. The former produced a profit of $1.482m, the latter a loss of $1.802m and St David $692k.
Whilst the results were not particularly great given the period of transition, the opportunities are substantial with a lot of low hanging fruit available to an astute management team. With 100% of Maggie Beer now owned, management have been able to create efficiencies by having these products produced by Paris Farms, reducing input and staff costs substantially. They have also integrated the Maggie Beer sales team into the business who will now expand their product line to include both the other key brands. The Paris Creek brand struggled somewhat due to an ill- fated decision to offer non-standard milk and yoghurt lines, which added cost to production and confused consumers; this has since been rectified. St David, which remains possibly, is also entering a ramp up phase, with management looking at expansion opportunities in Sydney and expanding their reach of independent stores and cafes and introducing a number of non-milk-based products, like almond and soy, which are part of an incredibly fast growing market.
At a market cap of just $35m, an investment in Long Table isn’t for everyone, however, it may offer great returns for those willing to be patient. The company is well capitalised with trade payables of just $4.4m, however Good Will from the purchase of Maggie Beer represents one of the largest assets at $41m. An investment in Long Table at this point is a bet that the company can ramp up both sales and margins on under a more professional and experienced management team; with the odds likely in your favour. Given the size of the company, we would expect further capital raisings to be announced as further acquisitions are identified, with a improved cost control likely to see the losses turn into gains sooner rather than later.
The company’s high-quality products, which claim to be Barista approved, are positioned to give the discerning Millennial consumer with the warm feeling that they know the cows producing their milk are happy, or which farms they are supporting. An expansion into non-dairy products, like almond and soy milk, exposes the company to a fast-growing sector that should add to returns. Whilst it may be a while down the road before the company rewards shareholders, it’s a very interesting speculative opportunity in the midst of a turnaround.