Research Report: Noumi Limited
Basic information
Ticker Symbol: NOU
Primary Exchange: ASX (Australian Stock Exchange)
Primary Sector: Consumer Staples
Industry: Soy and Almond Milk Production
Investment recommendation: Strong Buy, undervalued
Current stock price: $0.120
Market capitalization: $33.33M
Target stock price: $1.00
Liquidity: Low liquidity, due to low trading volume
Float: 154.80
Major shareholders: Arrovest Pty Ltd
Business description
Products and services: Developing, sourcing, manufacturing, selling, marketing and distribution of plant-based and dairy beverages, dairy and nutritional products to wholesale and consumer markets; and investment in dairy farming operations.
Key drivers of revenues and expenses: Dairy & Nutritionals revenue of $389.2 million. Distribution expense of $49,033 Million.
Industry overview and competitive positioning
Industry dynamics: Increased consumer health awareness is boosting sales of soy, almond and other plant-based milk at the expense of dairy milk. Changing lifestyle choices, including a rising veganism trend, are also fuelling demand for plant-based milks. Expanding into new and different flavors is poised to enhance revenue for plant-based milk manufacturers into the future. Soy and almond milk have reached or are reaching the point of total market acceptance.
Industry competitive analysis: Five Forces in Soy and Almond Milk Production
|
Forces |
Industry Features |
High/Low Power of
the force |
Profit Margin of
Noumi |
|
Supplier |
Noumi produces the dairy or milk Noumi is semi- independent from suppliers
for raw materials Switching costs are low for buyers |
Low-Moderate |
Moderate-Higher |
|
Buyer Power |
Have highest market share and many buyers Brand loyalty and total domination of distribution
channels (McDonald’s) Buyers are insensitive to prices as beverage
prices are very low |
Low |
Higher |
|
Intensity of Rivalry |
Access to key distribution channels (e.g.,
fast food, grocery stores, shelf space, cafes, restaurants) Competition on brand image High exit barriers (capital equipment
cannot be easily sold) |
Moderate |
Moderate |
|
Threat of Entry |
High capital requirements Noumi has a unique brand image Noumi incumbent’s economies of scale / production
line |
Low |
Higher |
|
Threat of Substitution |
Noumi has good brand loyalty Unlikely future change in the industry
business model Low switching costs |
Moderate |
Moderate |
Conclusion: Soy and Almond Milk Production Industry have weak forces - High profit margins for Noumi
Investment summary:
Description: Developing, sourcing, manufacturing, selling, marketing and distribution of plant-based and dairy beverages, dairy and nutritional products to wholesale and consumer markets; and investment in dairy farming operations.
Significant recent developments: Noumi's turnaround from a negative operating cash flow to a Q3 FY24 operating cash flow of $20 million including legal and US litigation expenses of $1.4 million. All Q3 FY24 segments revenue were higher compared to last year Q3.
Earnings forecast: My earnings forecast in the next year would be a turnaround to a positive net income, as the fair value of the convertible notes as shown in the income statement has a large contribution that affects the net income. I believe using their growing operational cash flow, they would achieve pay the interest and principal of these convertible notes.
Recommended investment action: Buy, as the share price is deeply discounted and mispriced due to their past accounting scandal a few years ago and low percentage of institutional holding. But after that event, there have been positive developments and major changes such as change of management, along with their new change of strategic decisions.
Financial analysis
Net Income: Net loss after tax of $27.7m including $32.3 m of the convertible note fair value adjustments.
Operating Cash Flow: Q3 2024 operating cash flow of $20 million includes US litigation expenses of $1.4 million.
Return on Assets: 2023: (14%)
2o22: (36%)
Shares outstanding: 277 million
Gross margin: 2023: 24.4%
2022: 18.8%
Asset turnover: 2023: 1.46
2022: 1.24
Investment risks
One major risk is default risk, as Noumi is currently going though a legal proceeding by ASIC that could be fined around $48 million. This is in regards to the past accounting fraud a few years ago. According to Noumi's most recent Q3 2024 financial report, they currently have a combined unrestricted cash at bank and undrawn facilities total $42.7 million. But looking at the ownership, Arrovest Pty Ltd is the only current major shareholder. Arrovest is a family-owned business, therefore my future assumptions would be that Arrovest would intervene and deploy their own cash into the company or Noumi would issue more shares/capital raising for their liquidity needs.
The next court update according to the ASIC website will be held on the 18th June 2024.
Environmental, Social & Governance (ESG)
Environmental: Focus areas are waste and packaging, energy and climate by investing in renewable energy and reducing emissions, sustainable water use, and sustainable agriculture.
Social: Focus areas is consumer health, nutrition and education by delivering the needs of their customers.
Governance: Focus areas are diversity and inclusion, and employee development and wellbeing.