SPC Global (ASX:SPG): A familiar name, but its now 4 companies in 1!

Very few Australians wouldn’t have either heard of SPC Global (ASX:SPG) or consumed some of its products (whether they know it or not). It sells canned and tinned fruits, particularly tomatoes as well as mangoes and peaches (amongst others) all grown and harvested in Victoria’s Goulburn Valley. But now, there is a lot more to SPC than that.

SPC is now 4 businesses in one

After more than a century as a private company, SPC is now ASX-listed. It entered the bourse at the end of last year by joining forces with the Original Juice Company, one of Australia’s largest chilled drinks and juices companies (the 3rd largest to be precise). A few months earlier, SPC acquired Nature One Dairy which sells powdered milk products. You’re probably thinking ‘infant formula’ and this is true, but it sells products for people at all life stages. And finally, SPC has acquired Natural Ingredients, which provides fruit and vegetables to companies like SPC, providing finished goods in retail-ready formats.

Many may not know this, but even prior to these transactions, SPC was more than canned tomatoes. In 2020, it bought The Kusine Company which sells Frozen meals, and it now has 3 brands with frozen products (The Good Meal, Street Eats and Pomlife). Frozen meals are growing in popularity because of convenience and there is such a variety of them to meet various tastes from low-cost meals to exotic cuisines, as well as various dietary requirements.

One difference with this industry compared to the former two is that the largest players have a high market concentration with the four largest operators holding over 75% of the market – with McCain being the most notable. Smaller companies lack the scale of production to efficiently compete with the giants, but this is where SPC can make a difference and it already has.

Better together

The combined business will be one of the country’s largest food producers. It will be able to produce all year around, without relying on limited seasonal production windows. While some of SPC’s products have windows as little as 12 weeks, OJC’s core production is 6 months of the year and Nature One’s milk products can be manufactured all year around. SPC has estimated that it will record $400m revenue and $29m of EBITDA for FY25. The business will also have

• Synergistic and operational efficiencies as well as enhanced production capacity in using all the legacy facilities at Shepparton, Mill Park, Essendon and Western Sydney,
• Enhanced distribution and supply chain efficiencies,
• Greater opportunity for expansion in overseas markets, particularly into the Asia-Pacific,
• A more diversified range of customers,
• Greater bargaining power in supermarkets; and
• A platform for further growth both organic and through M&A.

SPC plans to grow itself by entering new sales channel (such as the aged care and healthcare sectors), enhancing existing production facilities, overseas expansion, and amplified marketing efforts.

ESG investors will see some likeable traits in this company. In particular, the company’s products align with consumer trends towards products that are healthier and have more environmentally friendly packaging with reduced use of plastic.

SPC has committed itself to sustainable practices in its operations, including sourcing local ingredients and minimising waste throughout the production process. The company requires its growers to be certified and audited by Freshcare (a third-party certification board) in relation to chemical, fertiliser and water usage. Plus, it only selects growers who have started to transition to best practices in relation to modern drip irrigation and growing practices and conducts regular grower visits.

There’s considerable upside

Many investors could be forgiven for reluctance for this company given current market conditions and the company’s performance post-listing. The key to the company realising upside will be meeting its FY25 guidance. Our friends at Pitt Street Research have valued SPC at $1.37 in a base case and $1.90 per share in a bull case, suggesting 219% and 342% upside respectively.

Pitt Street’s report has suggested the company can re-rate through meeting its guidance as well as through other achievements that will help it financially including a normalisation of supply chains, organic growth, the securing of more profitable and less competitive sales deals and from operational synergies being realised from the bringing together of the three companies. The risks include: Competitive, commercial, legal, weather and key personnel risks.

But if SPC can realise its potential, we do not imagine the current share price levels will last for too long.

SPC is a research client of Pitt Street Research

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