The new financial year is off to a good start for Keytone Dairy. Photo / File
The new financial year is off to a good start for Keytone Dairy. Photo / File
Opinion
Keytone Dairy may not be listed on the NZX but it's one to watch as it inks new orders and ramps up production.
The ASX-listed stock took a tumble on global panic hitting 20.5 Australian cents on March 19.
Since then it's more than doubled to 43 cents as investorsbuy into its growth story that Covid-19 triggered "significant" global demand for its products. Appetite for its formulated milk powders is four times greater than before the crisis, it said.
The company was incorporated in September 2017 to buy and run New Zealand's Keytone Enterprises. It wrapped the deal up in July 2018 and listed on the Australian stock exchange at the same time, choosing Australia because of its proximity to a larger pool of funds.
The NZX, which has suffered from a dearth of new listings in recent years, would welcome a Keytone listing.
Revenue was A$2.5 million ($2.6m) in the March 2019 year, and that was already up 25 per cent from the prior year.
And while it hasn't published its latest result, the new financial year is off to a good start.
Earlier this month, chief executive Danny Rotman said it received orders worth approximately A$5.3m in 24-hours, more than double the March 2019 revenue.
That includes A$3.6m in opening orders after inking a long-term manufacturing deal with the Australian unit of US-based Iovate Health Sciences.
That order will be filled this quarter and represents 143 per cent of total 2019 revenue. The contract terms are indefinite, and volumes will be confirmed on an ongoing purchase order basis.
The following day it said it received follow-on orders totalling A$1.69m from Walmart China and Nouriz Fine Food Co.
Walmart China places orders for private label milk powders under their Sam's Club brand, operating 24 Sam's Club megastores and aiming for 40 by the end of the year.
Nouriz, a related party of Chinese state-owned enterprise China Animal Husbandry Group, orders whole and skim milk powders under its own private label.
For Keytone, the Walmart order was around 2.4 times larger than an order placed in February while the Nouriz order was seven times larger.
Keytone Dairy chief executive Danny Rotman. Photo / Keytone Dairy
These orders will be manufactured in the coming months and exported to China for June and July deliveries.
Not only is it getting new orders, but it's expanding.
Last month, its second New Zealand manufacturing facility – which is infant formula capable – got up and running. That will take its powdered product manufacturing capacity to 5,000 tonnes per annum, from the existing 1,500 tonnes, on a one shift basis.
It expects to scale up production to multiple shifts over the short to medium term.
In Australia it snapped up Omniblend and integrated its two principal powder manufacturing facilities into one large-scale nutritional powder manufacturing site in Melbourne, work that was completed ahead of schedule in December.
And in October last year, it also bought Australia's Super Cubes frozen smoothie brand and introduced new frozen purees brand to be distributed in more than 960 Woolworths stories from April. Minimum sales were tipped to be around A$2.5m over the next 12 months.
It's not risk free, however.
"They are very new and in an early growth phase," said Michael Harvey, a senior dairy analyst at Rabobank.
Also, they buy raw materials from dairy processors to repack/blend into retail products.
"They obviously have procurement risk around cost of those raw materials depending on commodity price cycle," he said.
Demand could also be a factor as global growth is expected to take a massive hit from Covid-19.
China's economy contracted 6.8 per cent in the first quarter, and the IMF is tipping world growth to contract 3 per cent this year.
Reserve Bank governor Adrian Orr told MPs last week that New Zealand's agriculture sector had so far weathered the Covid-19 crisis as production continued and exports held up relatively well.
"But of course, that is going to have a massive headwind going forward given where global economic growth and demand is," he said.
Keytone remains optimistic its products will still be sought after as health is now front and centre for people across the globe.
Rotman said Covid-19 has sparked a "structural shift" in worldwide consumption patterns with an increased focus from consumers on health and wellbeing.
Oyvinn Rimer, director, senior research analyst for Harbour Asset Management said it was great to see them pick up some chunky increases in orders.
"Certainly, one to watch if they continue putting runs on the board," he said.
