Goat milk supplier Nuchev set to make ASX debut following $48.6 million IPO

Australian-based food business Nuchev (ASX: NUC) is set to list on the ASX this coming Monday after raising $48.6 million and vowing to operate a “capital-light business model” in supplying a nutritious range of goat milk products to health-conscious consumers.

The company develops, markets and sells goat milk infant formula in Australia, China and Hong Kong with strong revenue growth and gross profit figures for the past 3 years.

According to Nuchev, it leverages leading raw goat ingredient suppliers and Australian-based manufacturers in an established, secure and scalable supply chain to deliver products under a premium brand.

Nuchev will hit the ASX by issuing 45 million shares with an offer price of $2.60 per share, thereby valuing the company at around $117 million by market capitalisation.

“Nuchev’s initial public offering is the next step in executing its growth strategy and accessing the significant goat infant formula market opportunity,” said Nuchev’s chairman Justin Breheny.

Goat milk superlatives

Founded and operated by Ben Dingle, who played a leading part in setting up New Zealand milk producer Synlait, Nuchev is coming to the market with a range of premium goat milk products which the company claims will offer differentiated health benefits relative to other infant formula products and full-cream milk powders.

Nuchev currently produces a range of products under its Oil6 brand with superior nutrition capacity compared to cow’s milk.

The company says its products contain 46% more vitamin A, 37% more vitamin C and 33% more magnesium than cow’s milk and refers to scientific research conducted by RMIT University that goat’s milk offers comparable benefits to mother’s milk for early infants.

According to RMIT’s research first published in the British Journal of Nutrition, goat’s milk contains an abundance of “oligosaccharides” that significantly enhance the growth of bifidobacteria and lactobacilli and reduce the adhesion of E. coli and S. typhimurium to Caco-2 cells. In other words, goat’s milk seems to contain strong anti-infection properties.

Overall, results published by RMIT suggest that oligosaccharides naturally present in goat’s milk exhibit strong prebiotic and anti-pathogen adhesion properties and may confer gut health benefits to infants.

The company says that consumer awareness and demand is rapidly increasing for goat milk products which presents a significant market opportunity to sell premium goat milk infant formula in global hotspots that are experiencing strong growth – namely Asian countries such as China.

Macro market growth

According to market research by Frost & Sullivan, the global goat infant formula market is expected to grow at a compound annual growth rate of 16.6% from $6.3 billion in 2018 to $13.6 billion in 2023.

Nuchev says its prime target market will be China given that most heightened demand and strongest consumer base for infant formula is based there.

In isolation, the Chinese market is forecast to grow at a rate of 18.8% over the next 4 years to reach $9.2 billion per year.

Moreover, Chinese consumers are also shifting their preferences from cow’s milk to goat’s milk with goat milk market share expected to reach 12.8% of the total infant formula market by 2023.

Nuchev financials and performance

In its prospectus, Nuchev stated it wants to conduct a market listing in order to provide financial flexibility and enhance its growth objectives.

The company is also looking to repay its existing $10 million debt facility provided by ADM Capital.

Since Nuchev began to sell its product range in 2016, the company has achieved strong growth in sales revenue and is forecast to grow revenue by 89% in the current financial year.

Furthermore, Nuchev estimates it will generate $18 million in revenue and 6.8 million in gross profit but expects to make a loss after tax of $6.5 million this year.

In terms of sales, Nuchev sold 254 million tonnes of product in the 2019 financial year and expects to more than double its volume in the current year.

The company owns a large Australian dairy goat herd of approximately 2,500 milking age does with a capacity to supply the raw ingredients required to produce approximately 500 million tonnes of goat infant formula per year – approximately 80% of its total forecast sales volume.

In parallel, Nuchev claims it has successfully trialled a goat embryo transfer program, which has the potential to rapidly increase goat herd numbers if required.

The additional production capacity is being earmarked for the Chinese market with Nuchev currently awaiting official SAMR brand registration before it can commence sales in the country.

Once granted, Nuchev said it expects to see a substantial increase in its sales volumes with key distribution partnerships and contracted minimum volumes exceeding 500 million tonnes already signed.