GrainCorp’s Malt Spin-Off a High-Quality Asset, but Not Value-Accretive; Maintain AUD 9.60 FVE
Following rumours in mid-March of a potential sale, no-moat GrainCorp has instead decided to divest its malts business, offering the segment in specie to current shareholders by the end of calendar 2019. We see minor value creation as a result of this transaction. We’re optimistic about the future growth in the malts business, and about the outlined AUD 10 million of pretax cost savings--about 5% of forecast fiscal 2019 EBITDA--from more-fully combining the remaining grains and oils segment. But...GrainCorp is a food ingredients and agribusiness company. Co. focuses its activities on three main grains (wheat, barley and canola). Co.'s reporting segments are: Storage and Logistics, which include grain receivals, transport, testing, storage of grains and other bulk commodities; Marketing, which markets grain and agricultural products and operates grain pools; Malt, which produces malt products, provides brewing inputs and other malting services, sells farm inputs, and exports malt; and Oils, which includes the processing and crushing of oilseeds. Co. also has a 60.0% joint venture interest in Allied Mills Australia Pty Ltd, a supplier of milled edible flour for human consumption.
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