What is the stock?

Murray River Organics Group (MRG.ASX). MRG is one of the larger organically dried fruit producers in Australia. In addition the business also owns a dried food distribution business. The business also produces table grapes and has 4,726 acres of owned/controlled land.

How long have you held the stock?

We invested in the business as a pre-IPO. We added to the holding during the IPO process. This business has since listed on the ASX (in mid-December 2016).

What do you like about it?

1. Previously purchased vines and increased area under crop, and maturation of past plantings, should underpin increased volumes of product. This should help to drive earnings into the future.
2. There is increasing interest in organically produced food and this adds to the products’ appeal to consumers.
3. The business is able to acquire other nearby competitors and even re-purpose sub-economic vineyards into organic grape and related production.
4. There is some degree of geographic spread across the vineyards that it owns, which in part reduces the production risk of the business. Most of the producing assets are located in the Riverina district. Over time diversification would further diversify the vineyards.
5. Contango was able to go and visit the vineyards located in the Riverina and the processing facilities (Dandenong) as part of our investment process.

How is it better than its competitors?

1. Murray River Organics is located in Australia.
2. MRG is in production and has an established pipeline of new vineyards and established distribution muscle.
3. The business is somewhat vertically integrated and not overly reliant on third parties.
4. MRG has the ability to distribute and market its own products.
5. The business has greater access to capital than other privately-owned competitors.
6. Organic products offer on-going consumer appeal and are less commoditised than regular production/products.
7. The business is in the export market, reducing the dependence on supermarkets in Australia.

What do you like about its management?

Management and the board have solid backgrounds in business and have successfully developed businesses in the past.

What is your target price?

We currently see value in the business up to $2.00.

At what point would you sell it?

We may look to review the holding if Murray River Organics approaches $2.00 but it at this stage it remains a key holding. We currently have some stock held under escrow and this may constrain how much we sell at any one point of time.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

The business has only been listed for three months. We are modestly ahead on the investment on an absolute basis.

Where do you see the value?

We see value in the business currently. We’d note that some patience is needed, as further financial results are required to underpin the investment. The business also has some risk(s) attached, such as agricultural and other business risks, and investors should be aware of this.

In Contango’s view, the business was perhaps unfairly caught up with the Bellamy’s (BAL.ASX) news in December when it listed. We note there are significant differences between MRG and Bellamy’s (BAL.ASX) but that this has held back the businesses’ share market performance.

Chart: Murray River Organics (MRG)

Source: nabtrade

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