Wattle Health punts on Uganic to restore some lustre

Infant formula group Wattle Health is punting on a new organic brand called Uganic, which hits the marketplace in April, to try to restore some of the $200 million in sharemarket value that has disappeared from the company in the past 11 months.

Wattle, a former sharemarket darling among the infant formula stocks that hit $2.72 in late February 2018, has suffered a big slide in its share price to 95.5¢ in 11 months.

The latest quarterly cash flow update to the ASX showed Wattle spent $3.4 million to secure organic nutritional powder from a third-party processor ahead of the launch of Uganic, a 100 per cent organic milk infant formula, which will be sold both in Australia and offshore from April. The company said it was in “final negotiations with major retailers in Australia” for the brand.

A spokesman said on Sunday that Uganic would be sold as an additional brand to the core Wattle Health brand, and not replacing existing products.

Wattle did say in its cash flow update that in securing the organic nutritional powder it had temporarily ceased production in some conventional products which had impacted sales in the December quarter. Receipts from customers in the December quarter were $289,513. The company said it was in a strong position with net cash holdings of $42.2 million.

Wattle “anticipates strong growth of sales for the remainder of the 2019 calendar year” from the launch of Uganic, and from its natural baby food pouches and another brand called Little Innoscents. Wattle’s share price surge in 2017 puzzled analysts because it had low sales revenue and lofty ambitions, but investors were banking on future success as it established its brands to tap into the “clean and green” demand from Chinese customers which had driven strong sales at other larger ASX players like Bellamy’s Australia.

Two weeks ago Wattle hired a new independent director to sit on its board, appointed Zheng Li. He had spent the past eight years with the Australian Securities Exchange as a senior adviser who scrutinised companies to ensure they were in compliance with the ASX listing rules.

Wattle has been on a rollercoaster ride since it debuted on the ASX in early 2017 after a float with an issue price of 20¢. In mid-2018 it was off the ASX boards for more than a month as it raised $54 million at $1.25 per share in a placement and rights issue at a hefty discount to the prevailing price. That was to acquire a 45 per cent stake in a joint venture company that is building a large organic dried milk powder plant at Geelong in Victoria.

The deal to inject funds into the Corio Bay Dairy Group entity, a partnership with the Organic Dairy Farmers of Australia, was revealed in April. The new organic milk spray drying plant is being constructed on land adjacent to an existing processing operation built in 2016 by the ODFA, which operates at a site close to the former Ford engine plant. Prospere Advisor Ltd has provided Wattle with a $20 million secured loan to help fund the construction.

Wattle said in its quarterly update that work on the plant was “under budget and on time” and that ODFA now controls 75 per cent of fresh organic milk in Australia, and was growing its milk pool further. Wattle is also selling a natural baby food range into India through a deal with Vasudevan & Sons, which it says has signed up for contracted sales worth $3.75 million.

The Chinese owner of the Swisse vitamins business is entering the fiercely competitive infant formula market in Australia with its Biostime brand, where it will take on rivals such as Bellamy’s and The a2 Milk Company.

It is using supermodel Miranda Kerr as its “ambassador” and has secured distribution deals with major pharmacy chains such as Chemist Warehouse, Priceline and Discount Pharmacy.

As seen in the Australian Financial Review on the 4th February 2019.