Investors are looking to pick up goat milk products producer Nuchev (ASX:NUC) at a 23 per cent premium to its listing price after a stellar first day’s trading yesterday.

Bids for the Melbourne agricultural biotechnology company’s securities were sitting at yesterday’s closing price of $3.20 before opening this morning.

The St Kilda Road company’s price is a 60c, or 23 per cent premium, to the company’s $2.60 listing price.

Nuchev ended its first trading day with a $144m market capitalisation.

The company’s market capitalisation on listing was about $116.9m while the enterprise value of the company had previously been about $96m, based on prospectus documents.


Backed by capital

The infant formula producer and northern Victoria goats milk farmer is hoping to position itself for further growth.

In its Wilsons-led raising, Nuchev was targeting $25m from new investors to complement $23.7m raised from existing shareholders.

It ended up raising $48.6m, just $100,000 shy of its target, and had $21m cash at the end of June.

The company previously undertook a debt and equity raising in FY19.


Strong revenue growth

Nuchev’s documents posted yesterday included two annual reports showing strong financial performance on the revenue front.

The fiscal year reports showed a threefold revenue increase of $6.4m to $9.5m in FY19 compared to FY18 revenues of $3.4m.

Revenues in FY17 were $2.5m.

The fast-growing junior hopes to increase its revenues by $8.5m, or 89 per cent, to $18m in the 2020 fiscal year.

“Our growth has come from a broadening of distribution channels and strategic partner relationships,” the company’s directors, CEO Ben Dingle and chairman Justin Breheny wrote on behalf of the company board in the 2019 report dated June 30, 2019.

“Most significantly (of these were) in cross-border ecommerce channels and with strategic Daigou servicing China demand.”

Coles revenues written late in the 2019 financial year were also contributors to revenues.

“We continue to build on the strong relationship with Chemist Warehouse and other pharmacy banner groups, spearheaded by Nuchev’s brand trainers who have driven an increased awareness of (goats milk product line) Oli6 and its benefits as evidenced by substantial sales lifts,” Nuchev said.

The Oli toddler milk range features powdered goats milk and infant formulas.


A growth strategy

Breheny noted in the prospectus the food business had a strategy to progress its goat infant formula (GIF) market opportunity.

The company said its three-pillared growth strategy focused on nutritional development and product quality, brand positioning and awareness and a multichannel sales strategy and channel support.

Nuchev currently sells GIF products in Australia, the Hong Kong special administrative region and China.

The Tmall, and Kaola ecommerce platforms are important Chinese market distribution channels, with Nuchev able to ship its products from the Hong Kong special area to mainland China.


China in its sights

Breheny highlighted the company was targeting the growing Chinese market.

“Nuchev’s initial public offering is the next step in executing its growth strategy and accessing the significant GIF market opportunity,” he said in the prospectus.

“Nuchev is specifically targeting the Chinese GIF market which is forecast to grow at a compound annual growth rate of 18.8 per cent from 2018 to 2023.”

The compound annual growth rate (CAGR) over the five-year period to 2023 would put market size at $9.2 billion, with goat formula making up 12.8 per cent of the total infant formula market in China.

Global CAGR over the period is expected to be $6.3 billion, or 16.6 per cent, to $13.6 billion by 2023.

The capital-light company expects to primarily fund future growth with cash flow and retained earnings.