The share price of olive-oil producer Cobram Estate Olives Ltd (ASX: CBO) won’t be moving today while the company raises $50 million to fund growth in Australia and the United States (US).
Land and expand
The proceeds from the $50 million raising – issued at $2.00 per share – will be used to fund two key projects:
- Expansion of olive milling at Boort Grove in Victoria to triple processing capacity – $15 million
- The acquisition of 438 acres of freehold land in California – $35 million
The Boort Olive Mill is running close to full capacity. With mature groves expected to increase 253% by 2030, additional facilities need to be built.
The new facilities will increase production and reinforce Cobram’s position as the dominant domestic producer with a 45% market share.
Meanwhile, the business is hoping to replicate its Australian success in the US.
It has two properties ready to purchase and actively looking to expand its footprint.
Management sell down
Separately, Cobram Estates joint CEOs Sam Beaton and Leandro Ravetti, and Directors Paul Riordan and Tim Jonas will sell a combined 7.75 million shares.
The sell-down is fully underwritten and will be used to pay down related party loans and tax liabilities.
“None of the selling directors participating in the Director Sell-Down currently have any intentions of selling any further shares, and importantly, each of them remains fully committed to CBO and will remain significantly invested in CBO shares once the Director Sell-Down is completed”.
Strong start to public life
Sales are off to a strong start in Australia despite supply constraints. Subsequently, the business is forecasting positive sales growth despite the business entering a down-year in terms of production.
Olive oil groves typically operate in a two-year cycle, with a high and a low yield year.
Management reiterated Cobram’s two-year rolling EBITDA is expected to continue increasing over time as more production comes online.
However, it should be noted FY22 EBITDA will be materially down on FY21 due to entering a low-yield year.
My take
The $50 million capital raise is lower than the $75 million in growth capital the company was hoping to raise in August when it was listed.
However, it should be noted that Cobram has benefitted from a bigger crop, in addition, to lower energy and water costs reducing the need for excess capital.
Now it can more aggressively pursue the US opportunity while using the increased Australian production as cash-cow to fund future growth.
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Editor’s note: The author originally stated that the company hoped to raise $175 million in August. While this is true, only $75 million was for growth capital. The article has been amended to better illustrate the size of today’s raising to historical comparisons. We apologise for any confusion.
