Agricultural additives business Anpario has increased its exposure to the lucrative Chinese market by buying natural animal and aquafeed additive products supplier Meriden Animal Health for £4.125 million.
The acquisition is expected to be immediately earnings enhancing, said Anpario.
Meriden’s Orego-Stim range of products, using essential oils, is marketed across 60 countries worldwide, with the majority of sales being outside the United Kingdom.
Importantly, Meridan has a significant presence in China, which accounted for 26 per cent of total group sales in 2011. The Bedfordshire-based group plans to give further support to its Chinese operations to “capitalise on the vast potential of China’s agriculture market”.
“This acquisition increases our global market share in animal feed additives which is benefiting as the agriculture industry looks to use natural based solutions to promote the health and growth of animals for meat consumption,” said executive vice chairman of Anpario Richard Edwards.
“Meriden’s significant presence in China increases our involvement in the world’s biggest producer of poultry and pig meat and reinforces our strategy to build more significant positions in emerging agriculture and aquaculture markets.”
Meriden, which made a £740,000 profit on sales of £5.35 million last year, will be run as a separate business.
Anpario has already made an initial payment of £3 million from existing cash reserves. The remaining £1.125 million is payable over the next two years, dependent on Meriden achieving certain performance targets.
Of this, £125,000 will be paid in Anpario shares to Meriden’s shareholders.
Investors liked the news, sending shares in Anpario up 6.5 per cent to 83.5 pence in early deals, giving the group a market cap of £16.35 million.
The acquisition prompted broker finnCap to raise its target for Anpario to 140 pence from 120 pence, an upside of nearly 80 percent to Thursdya’s closing price.
FinnCap analyst Duncan Hall estimates that Meriden will contribute revenues of £4.1 million and an EBITDA of £0.5 million in the current year. For a full year, Meridan should enhance group pre-tax profits by £0.75 million on sales of £5.5 million, based on its performance in 2011.
Hall now expects the enlarged business to post pre-tax profits of £2.7 million for the full year and earnings per share of 10.2 pence, up from last year’s £2.1 million and 8.4 pence respectively.
The analyst also noted that, according to his calculations, Anpario finished the year with £4.5 million in the bank, which means the acquisition will place no strain on the balance sheet, especially since Meriden will come with surplus cash.
Anpario says that it expects to have £2.5 million in the bank following the completion of the acquisition.
“The purchase of Meriden Animal Health... will be satisfied from existing cash resources and represents a complementary and earnings enhancing move,” said Hall.
“This move encourages us to lift our target price to 140 pence, offering investors useful upside from the present share price.”
