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$1b price tag likely on any CPC sale deal

by Beef Central, 25 May 2017
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CONSOLIDATED Pastoral Company could realise up to $1 billion in the current beef industry climate, if majority owner, British private equity giant Terra Firma, goes ahead with a sale.

CPC-new-with-mission-300x113The prospect has been raised in an article by Damon Kitney in The Australian newspaper this morning, reporting that Terra Firma is working on a ‘potential’ sale of CPC. That process is apparently still in a planning phase only.

If a deal is negotiated, it would be the single largest cattle business transaction in Australia’s history, dwarfing the recent $386m S. Kidman sale to Gina Rinehart and partners, and QIC’s purchase of 80pc of North Australian Pastoral Co, said to be worth around $400m.

The Australian says no timeframe has been set for the process. CPC declined to comment on whether advisors had been appointed to test the market for buyers.

CPC received a number of unsolicited approaches from local and offshore buyers over recent years, looking to invest in the Australian beef industry on a large scale.  A possible sale of CPC was last suggested in headlines during the S.Kidman sale process, when China’s PengXin and others were linked with possible sale interest.

Consolidated Pastoral Co is the world’s second largest cattle producer after AA Co, managing a herd of around 366,000 head of cattle across 16 properties in Queensland, the Northern Territory and Western Australia, totalling around 56,000sq km. Former managing director and CEO, Ken Warriner, who originally bought Newcastle Waters with the later Kerry Packer to form CPC, still holds a small shareholding in the company, said to be less than 5pc.

“Terra Firma is looking to capitalise on high beef prices and soaring land values, and increasing foreign interest in Australia assets flowing from regional trade deals concluded in recent years,” Damon Kitney’s Australian article this morning said.

But any move by Chinese investors to secure CPC could reignite concerns about China’s ownership of Australian cattle land, which rose to prominence during last year’s S. Kidman sale process.

CPC last year reported one of its strongest annual profit results, logging a net profit of $20.3 m for the year ending March 31. The result was driven by an 86pc increase in revenues to $165m, reflecting higher volumes and improved market prices for cattle. The value of total assets was $786m, up $51m from the year before.

Coincidentally or otherwise, Terra Firma’s vice chairman and head of portfolio businesses, Justin King – one of the UK’s most famous businessmen – is in Australia for CPC board meetings next week. During his visit he will deliver a presentation at the Agribusiness Australia lunch next Wednesday. His topic? “Steps to a Successful Business Transformation.”

Beef Central has bought a ticket, and will report back to readers.

 

 



Reader's Comments


Comment
  • Michael J. Vail May 25, 2017

    Interesting article posted here. Now Terra Firma may like to receive $1.0-billion, or more, for the sale of this asset; especially whilst at the top of the market. But, is it worth that much?

    Look through the long-term cycle over say a 10-year rolling median moving average. Let us say this number for the Net Farm Gate Price received per Head (net of all selling costs except commission on sale, as if it was a paddock sale) were a median price of around $900.00 per Head. Let us also assume that the Sustainable Sticking Rate is around 1-Beast (avg) : 38-Acres (as advised in this article) [13,837,901-Acres / 366,000-head), then the fundamental intrinsic value of the total enterprise as a beef factory, is around $44.00 per Acre (WIWO) as a going concern, and fully stocked, with all things necessary.

    That is an implied value of around $608.0-million.

    A Premium for scale, quality of assets, and management might be in the realm of around 25.0% to 30.0%: say $761.0-million to $792.0-million.

    Revenue is cyclically high at this time. A look through the cycle Revenue number is likely to be in the realm of around $100.0-million pa. Apply a multiple of around 2.2-times to arrive at an Enterprise Value of around $220.0-million WIWO.

    If the Net Profit is assumed to be real, rather than Statutory, and remains long-term at around $25.0-million, then we may apply a rough 15.0-times multiple (per AAC today on Yahoo! Finance), and arrive at an Enterprise Value of around $375.0-million.

    The revalued assets sit on the books at $786.0-million (from above). Though this is market value apparently, and may be re-valued upwards further, or impaired downwards, as necessary.

    I have spoken to long-term NT cattlemen who tell me that around $1,600 per Beast Area is all they would pay. That equates to a WIWO value of around $586.0-million.

    So which number is correct?

    Terra Firma may have paid more than a little over $400.0-million for 90.0% in 2009. If they bought from James, you may be reasonably sure they paid top dollar, plus a premium.

    Food for thought …

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