The Beston Global Food Company Ltd (ASX: BFC) share price is flying higher today after the company announced the sale of its dairy farms in Mount Gambier.
As its name suggests, Beston Global is in the business of food. The company aims to provide natural and verifiably safe food and beverages to global markets.
To achieve this, it owns the raw materials, utilises technology in the production process, and controls distribution.
Beston Global’s range of products focuses on the food groups of dairy and meat.
Why is the Beston Global share price rocketing?
This morning, Beston announced it has signed an agreement to sell its dairy farms in Mount Gambier to Aurora Dairies for $40.4 million cash.
Under the terms of the agreement, Beston will receive all milk from the farms, which is currently around 17 million litres per annum, over a 10-year period. It also has the option to extend this period.
The sale process for the farms was conducted through an international open tender process which commenced at the beginning of this year.
Beston highlighted that the proposed transaction achieves its strategic objective of releasing capital for re-investment in higher returning dairy factory assets, while securing long-term milk supply from the farms.
Proceeds from the sale will be used to reduce balance sheet gearing to around 10% and fund the company’s mozzarella and lactoferrin production expansion.
The transaction is subject to approval from the Foreign Investment Review Board and other usual conditions. Subject to the relevant approvals and conditions being satisfied, Beston expects to complete the transaction by 30 September 2020.
Management commentary
In today’s announcement, chief executive Jonathan Hicks noted that the demand for the company’s mozzarella products has been steadily increasing. This is despite the closure of restaurants and other food service outlets during the COVID-19 lockdown period.
And in regard to the update, Mr Hicks said:
“The sale of the farms, the securing of milk supply and the positioning of the business to focus on Beston’s strategic growth initiatives comes at a good time for the business as we work through the other side of the restrictions brought on by COVID-19.”
At the time of writing, the Beston Global share price has rocketed 40% higher to 7.7 cents. This takes the company’s current market capitalisation to around $36 million.
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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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