Yesterday afternoon, the final price for the Murray Goulburn IPO was announced to the market.
MG Unit Trust [ASX:MGC] will start trading on Friday at $2.10.
It’s at the lower end of what Murray Goulburn and their backers were hoping for. In the offer prospectus, they said they were aiming for between $2.10 and $3.20. Many commentators were tipping that they’d get at least $3. Others were worried about voting rights. Because it’s a unit trust, it just comes with profit sharing — no voting rights, or other privileges that come with being a regular shareholder.
This means that they’ll be issuing more shares than they would have, in order to reach their capital raising target. But at least they’ve got the $500 million they need to invest in Aussie farms and processing infrastructure.
In announcing the final price, Murray Goulburn chairman Philip Tracy wrote that ‘MG now has the capital it needs to deliver our plans to grow the business domestically and internationally to achieve sustainably higher milk prices and returns for share and unitholders. We will now be delivering the key capital projects for dairy beverages, consumer cheese and nutritional powders which will further increase MG’s weighting towards higher value-add premium dairy foods and away from volatile bulk commodity markets and prices.’
So instead of just bulk milk, they’ll be able to make more products for the domestic market. Which means they won’t be as vulnerable to global commodity price fluctuations. The chart below shows the Global Dairy Trade Price Index, which includes everything from powdered milk to butter, across 90 countries. This is what dairy farmers care about, because it’s a practical average of all the things that can be created with their milk. Which they get paid for ‘at the farm gate’, before it’s turned into other products — the prices of which can balance each other out.
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Things like fancy cheese and flavoured milk can still be exported, but the prices don’t swing up and down the way milk and butter prices do. And those ‘value-add premium dairy foods’ slowly keep getting more popular in Australia, whereas milk consumption stays about the same.
Source: Dairy Australia
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For some reason, Tracy also tried to blame political events for the way the institutional bookbuild worked out. He wrote that ‘global events of the past week and continuing today, have weighed heavily on financial markets across the world and our capital raising has not been immune to this.’ I mean, sure, the Greek debt crisis could have made institutional investors a little more conservative. But if MG Unit Trust was a good opportunity before the bookbuild, that shouldn’t have mattered as much.
What it means for investors
For those who decide to buy this Friday, it just means that the first distribution will be lower per share. In the prospectus, Murray Goulburn estimated that if the final price was at the low end, the distribution per unit in FY16 would be about $0.155. That’s $0.026 lower than it would have been if they achieved their top target price.
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Contributor, Money Morning