The $690m stock feed company Ridley is understood to be on the acquisition trail, with most expecting the company to embark on small, value-adding deals.
It is believed that investment bankers have been shopping opportunities to Ridley.
MA Moelis said in research released on Wednesday that the position of Ridley’s balance sheet at 0.3 times its earnings before interest, tax, depreciation and amortisation compared to its targeted gearing range of one to two times EBITDA provides management with flexibility to undertake capital management initiatives and/or strategic and value-adding acquisitions.
Management has consistently delivered on its strategy, which means shareholders would likely back deals that the company was keen to embark on.
MA Moelis analysts believe its operating margins would expand and it would grow market share through the expansion of its feed mill capacity, and would allow Ridley to offer lower prices and place pressure on its competitor’s margins.
Particular opportunities existed in expanding its share in the dog food market, with Nestle recently staging an exit from the rural dog feed market.
They say that they expect that Ridley will grow its earnings per share at 6.6 per cent over two years.
Ridley is also continuing to improve its earnings quality through bespoke and higher quality products as well as moving into more consumer staple products like urban dog feed.
The analysts believed that Ridley remained undervalued compared to its peers, trading on 10.9 times its forecast annual earnings before interest and tax for the 2024 financial year.
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