Scales has $220m war chest, after cold storage sales

Agribusiness company Scales Corp will have about $220 million in its war chest to pursue merger and acquisition opportunities, if the company gets Overseas Investment Office approval to sell its cold storage businesses to US-based Emergent Cold, according to broker Craigs Investment Partners.

Christchurch-based Scales said last week it had agreed to sell its merged cold storage businesses Polarcold Stores Ltd and Whakatu Coldstores Ltd to Emergent Cold for $151.4 million, subject to  approval. The OIO process could take six months, but if approved, the transaction will give Scales about $220 million to look for other opportunities in the agribusiness sector, Craigs research analyst Adrian Allbon says.

Scales is New Zealand's largest, fully-integrated grower, packer and marketer of apples, and the second-biggest apple exporter after T&G Global. It has invested in sweeter, redder apple varieties which fetch a premium in Asia. The company also has other horticulture divisions, as well as logistics and food ingredients businesses, including pet food and apple juice concentrate.

It has low levels of debt. The company says it is hunting particularly for agribusiness acquisitions that would fit well with its export apple business, consistent with its aim to become the foremost investor in and grower of New Zealand agribusiness.

The Craigs report says Scales got a "solid price" for the coldstore.

"That being said, a key and open question looking forward is how these proceeds are re-deployed within SCL’s refreshed strategy of focusing more on pure agribusinesses, export-led and with the opportunity to add value from existing Chinese relationships."

In its 2017 financial year, Scales reported earnings before interest, tax depreciation and amortisation of $61 million and average net debt of $54.8 million, giving it a debt/ebitda ratio of 0.9 times.

Earlier this month, Scales said it remains positive with regard to its 2018 financial performance, with all three divisions (horticulture, storage & logistics and food ingredients) trading well during the first quarter of 2018, including this year’s apple harvest.

Scales shares closed at $4.90 last week, and have gained 44 percent over the past year.

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