Tulips from Amsterdam: Honey from Rosedale

One of the sad things about being a 50 year old investment banker is a vague yet pervasive sense of disappointment about the world. 

In my 20's and 30's, I used to generate my enthusiasm and energy by willingly shifting my weltanschaunng (worldview) to align with how others framed the world.  In my 40's, I battled entropy by engaging fictionalist's to help them see the world not just in their terms, but more as it is, rather than how they want it to be.

Finally, now in my 50's I find myself conserving my energy for things that really matter, and now I just see things as they truly are, not as others wish me to see them. You can't sugar coat it. Not even with Manuka Honey.  

In March 2016, Oceania Natural, listed circa 25% of its shares on the NXT market.  This tiny business with annualised revenues of $3.4m p.a., had only been started 10 months earlier, in May 2015, and in less time than it takes for a tulip bulb to bloom, it had blossomed into a listed vehicle.

As part of the listing process for NXT, research reports are commissioned and circulated, ONL's was prepared by Edison.  Edison's report noted that the value the business on an Enterprise basis (EV) at listing at $0.64 cents was between 4.7x -3x full year forecast earnings, compared to Comvita's 1.7x.   

In the early 1600’s a single tulip bulb was selling for over ten times what the average skilled worker made in an entire year. Some sources suggest that the most “valuable” bulb was thought to have been worth 10,000 Florin's whereas the average worker made only 300 Florin's a year.  The 1637 event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay.

So how can we compare todays Oceania's magical Manuka from Rosedale, with yesteryears Amsterdam's tulips: well it comes down to what's happened since listing...fast forward two whole months and the market cap of ONL has surged to circa $70m as its share price has increased by more than 400% to $2.70. Giving it a 1 yr + full year forecast revenue to EV of 12.9x times, which is 11.2x more than Comvita.

Using some old fashioned analysis the annual volume of product is still largely the same, so the already expensive manuka honey pots will have to be sold at circa $200 rather than $50 to justify this.

So lets admit it: it's not quite tulips from Amsterdam, but I am pretty sure that Pooh Bear will be declaiming Honey from Rosedale! And, for those hopeful shareholders who got in since March, have faith: a wise man once told me that equity is an infinitely long option, I trust your returns will be sweet - one day. I just prefer measuring business value on earnings, not revenues.  

All the best Leon