PFD Foods’ owner Invests $5M into OJC
Last week our small cap Investment The Original Juice Company (ASX:OJC) completed a placement with a single sophisticated investor entity, the Smith Family.
The Smith Family is headed by Richard Smith AM, who is widely known for his ownership of PFD Foods.
The placement was done at 10 cents per share (a premium to the share price at the time).
PFD Foods is Australia’s largest, family-owned food services distributor.
With 3,000 staff and 850 trucks, PFD Foods operates a massive food distribution network within Australia, delivering fresh and frozen food to food service businesses like restaurants, cafes, hotels and schools.
It’s also important to note that new OJC Chairman Jeff Kennet is also the chair of the advisory board to PFD Foods.
We think it is clear that the new Chairman is leveraging his connections to support the company.
We also think that this $5M investment does a few key things for OJC’s future prospects:
- Solidifies its balance sheet and eliminates the prospect of a capital raise meaning that shares need to be bought on market for investors to take a meaningful position in the company
- Brings OJC closer to PFD Foods, and given PFD’s vast distribution network, is an important strategic partner for OJC to grow sales rapidly
- Puts OJC in a position to acquire expand via acquisition if it wants to
On that third point, CEO Steven Cail hinted that OJC is “well placed to explore market consolidation opportunities and drive economies of scale”.
But why now?
OJC Market Dynamics
Over the past 12 months the price of Orange Juice has risen over 112%, more than any other commodity.
This is largely driven by extreme weather events leading to poor crop yields in Brazil, which accounts for around 75% of the world’s orange juice trade.
What does this mean for OJC?
OJC buys all of its oranges from Australian growers.
It has contracts locked in well in advance, meaning that it is somewhat shielded from the increase in price of oranges.
However, OJC’s competitors that buy oranges, juice or juice concentrates from Brazil, will be feeling the pinch - as the company’s main inputs are getting more expensive.
This has meant that OJC’s competitors are losing money, and turning to Australian growers - pushing the price up for oranges in the long term.
This is a double edged sword for OJC.
On one hand, the price of fruit is more expensive than before, but on the other hand there are businesses and brands that are struggling to survive learning of the opportunity for OJC to consolidate its position in the market.
That’s why we found it so interesting that the OJC mentioned “consolidation” as an opportunity going forward, and now with $5M extra in the bank, we think the company has the flexibility to pursue such opportunities.