July 15, 2021
Agronomics: Offering Unique Listed Exposure to Early Stage Companies in the Meat Free Space
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In my last post, I explained the reasons why I believe the meat alternatives market will continue to grow exponentially, possibly completely replacing the enormous conventional meat industry. The problem for us as equity investors is that the vast majority of the companies in this exciting new industry are privately held startups and therefore not listed on equity markets. However, today I’d like to tell you about one listed investment trust which I hold in my personal portfolio which does provide diversified exposure to this exciting trend.

I believe a pivotal moment for the field of cellular agriculture has been reached in the past few weeks when Singapore startup Eat JUST’s cultivated chicken was approved for sale in Singapore, by the Singapore Food Agency. This is the first cultivated meat product to be approved for sale globally, and signifies that cultivated meat is safe for consumption, and will lead governments to supporting the sector, especially in order to meet their sustainability targets in the years to come.

Agronomics: Offering Unique Listed Exposure to Early Stage Companies in the Meat Free Space

Pynk Community Agronomics Equity Research

Pynk Community Agronomics equity research report graph

Source: Stockopedia
Past performance is not indicative of future results.

Investment Case

Many people recognise the exciting growth prospects of alternative meats in the years ahead. Agronomics is one of very few companies to offer us exposure as stock markets investors to this growth in a well diversified way. The investment case is further supported by the world’s first regulatory approval for sale of cultivated meat (when Eat JUST’s cultivated chicken was approved for sale by the Singapore Food Agency). It is difficult to underestimate the significance of this development: a respected regulatory body has determined that cultivated meat is safe for human consumption, and it is hard not to imagine that other regulatory bodies around the world will follow suit, with obvious implications for the growth of the sector as a whole.

I believe Agronomics is at an exciting point in its development, as lab-based alternatives gain regulatory approval and hit our shelves this year and next, turning its hitherto speculative investments into high-growth portfolio companies generating revenues and profits. In addition, the recent pullback in the price on the back of the new equity raise I believe provides an excellent buying opportunity.

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Recent Results

Financial highlights of recent half-yearly results:

  • The Company’s investment income, increased by 506% to £510,635 (2019: £84,262) during the six-month period
  • Operating expenses were £441,013 (2019: £577,782), a decrease of 24% and mostly composed of professional fees relating to the investments acquired and the fundraise completed during the period.
  • A net loss of £1,447,306 (2019: loss of £493,493), an increase of 193%, was recognised during the period, almost all being foreign exchange revaluation losses of £1,383,665 of the investment portfolio to spot rates
  • Invested assets at fair value increased by 61% to £26,930,310 (30 June 2020: £16,740,656), and cash and cash equivalents stood at £2,506,516 (30 June 2020: £2,789,097)
  • Net assets increased by 43% to £27,754,579 at 31 December 2020 (30 June 2020: £19,416,878). The increase is principally due to a successful fundraise during October 2020, raising total net funds of £9,589,825 and issuing 167,735,814 new ordinary shares

Richard Reed, Chairman of Agronomics, commented:

“The first half of the financial year has been both busy and very exciting. Our current investment portfolio shows considerable promise for future growth given the scale of opportunity to invest in the nascent alternative foods sector. We are expecting significant developments in a number of our portfolio companies that should positively impact their valuation in the coming months. The Board will continue to seek new opportunities in line with its Investing Policy.”

Highlights of Key Portfolio Holdings

BlueNalu

Possibly the most exciting investment within Agronomic’s portfolio is its holding in San Diego based startup Blu Nalu. Established in 2018, BlueNalu is the leading company developing great tasting, cell-based seafood products that support the sustainability and diversity of our oceans. The problems of overfishing and food insecurity in much of the planet are well understood and Blue Nalu as the first mover in the cell-based seafood space has exciting prospects. The global market for seafood is highly vulnerable today given depleted fish stocks and is valued at an estimated $200 billion so it is perfect for the provision of alternatives.

Recently, BlueNalu secured $60 million in Convertible Note Financing in which Agronomics took part (which will lead to Agronomics having a 5% share of the equity). The financing is to support its plans for market launch in late 2021 by enabling BlueNalu to achieve several significant milestones, including opening a 40,000 square foot pilot production facility, completing FDA regulatory review for its first products, and initiating marketplace testing in a variety of food service establishments throughout the United States. The company anticipates starting with the launch of mahi mahi later this year, followed by the launch of a premium bluefin tuna thereafter. This marks the largest financing to date in the cell-based seafood industry worldwide. Previously, BlueNalu announced completion of its Series A round of $20 million in early 2020, and its Series Seed round of $4.5 million in early 2018.

The team at BlueNalu is driven to produce cell-based seafood products that are healthy for consumers, humane for animals, sustainable for our planet, and provide increased food security to each nation in which we go to market,

…stated Lou Cooperhouse, BlueNalu’s President and CEO.

This recent financing will allow us to continue advancing our mission and the next phase of our commercialization plans, while we continue to develop strategic partnerships that we expect will provide us with global market reach during the coming years.

BlueNalu is currently establishing joint venture partnerships within key markets where it will operate. These partnerships are expected to enable them to navigate regulatory pathways, lower the cost of goods, introduce new species and new product forms, and inform their global market strategy. Previously, BlueNalu announced five global strategic investment partners: Nutreco, based in the Netherlands; Pulmuone, based in South Korea; Sumitomo, based in Japan; and Griffith Foods and Rich Products Corporation, based in the U.S.

SuperMeat

Agronomics recently announced an investment of US$ 2.0 million, in the form of a Simple Agreement for Future Equity (“SAFE”), in SuperMeat. The SAFE will convert at a price per share reflecting the lower of the valuation cap or at a 25 percent discount to the share price of SuperMeat’s next equity round. It is expected that upon conversion of the SAFE at the completion of SuperMeat’s next equity fundraise, and assuming that it will be done at a pre-money valuation of US$ 150 million, Agronomics will hold approximately 2.22% of SuperMeat’s fully diluted share capital.

SuperMeat was founded in 2015, as one of the first cultivated meat companies to emerge in the field of cellular agriculture. SuperMeat is based in Israel and its initial focus is on cultivated chicken products. It has made substantial technological progress in establishing a commercially viable production process, showcased in its operational pilot plant with a capacity to produce several hundred pounds of meat per week.

Most recently, SuperMeat unveiled its innovative, sustainable restaurant experience in Tel Aviv, Israel: The Chicken, where people can apply for a table and enjoy a meal of SuperMeat’s cultivated chicken, while observing the meat being grown in bioreactors through a glass window. The Chicken is the world’s first test kitchen serving a menu of cultivated meat products.

Richard Reed, Chairman of Agronomics, commented:

In our view, SuperMeat is one of the most advanced and impressive companies in the field of cellular agriculture. SuperMeat has demonstrated leadership on many fronts, and most recently with the launch of their concept restaurant The Chicken. We look forward to working with Ido and his team to make cultivated meat a reality. This investment in SuperMeat enhances Agronomics portfolio substantially, and we now believe we have the most comprehensive and investable portfolio of companies in the field of cellular agriculture with exposure to all major categories including beef, pork, chicken, seafood, novel proteins and materials.

LegenDairy / FORMO

I recently attended a conference showcasing Agronomic’ investee companies and I must say the one that I felt most excited about was LegenDairy (now rebranded to FORMO). Dairy and specifically cheese alternatives are a significant portion of the animal free market which seems much less well served currently by tasty alternatives, FORMO, formerly known as LegenDairy Foods, is Europe’s first cellular agriculture company developing cultivated dairy products - that is dairy which is based on real, animal-free milk proteins produced using precision fermentation. The startup was founded by Raffael Wohlgensinger and Dr. Britta Winterberg. As well as the rebrand, FORMO has grown its team of experienced scientists and business executives and has a new website.

Agronomics co-led Formo’s EUR 4 million seed round in December 2019, alongside M Ventures, the corporate venture capital arm of science and technology company Merck. Agronomics currently holds 6.4% equity interest in Formo on a fully diluted basis.

Formo is the Latin word for ‘I mold, I form’ and the historical origin of the word is closely connected to the tradition of the ancient Romans improving cheese through new technology. Formo uses microorganisms instead of cows to produce their animal-free milk proteins. Initially, selected microorganisms are encoded with milk protein DNA sequences. These cells then grow in a fermenter until enough protein has been produced to be harvested. The milk proteins are then combined with plant-based fats and carbohydrates to create the base for the cheesemaking process. In the traditional way, fermentation, enzymes, or heat are then used to coagulate the product into curd. From there, the Formo artisans can cover the whole spectrum of cheeses. The product can be packaged right away as fresh cheese, or ripened to create strong, unique flavours.

We started with LegenDairy Foods as a brand to establish ourselves in the precision fermentation space. With the best talent on board and our first validated prototypes, it is the right time for us to launch a protectable consumer brand. Our new brand communicates our vision and values: changing the food system through delicious animal-free products. Raffael Wohlgensinger, Formo founder and CEO

Our team wants to make the best of European cheese culture enjoyable to the whole world. We pioneer new ways of making the hedonistic cheese products we all love, but with better, more sustainable technology and a good conscience. Formo represents our ambition to remix the heritage by combining tradition with breakthrough science. Dr. Britta Winterberg, Formo founder and CSO.

Alongside the re-branding, the company is working towards bringing the first products to the consumer. Later this year, Formo is planning to host an exclusive product demonstration event in collaboration with a Michelin star chef.

Recent Equity Raise/Investments

In what seemed to be a surprise to the market, Agronomics recently raised £62.5m via an equity placing. The money will be used to make ongoing follow-on funding investments in portfolio companies. Although clearly dilutive, this fundraise is in my opinion a positive, giving the management the firepower to continue to invest in the space and provide us with the superior expected returns on offer as the sector and its investee companies grow. The resulting share price weakness on the back of this fundraising is therefore an attractive buying opportunity in my opinion.

Recent Follow-On Investments:

  • In March 2021, Agronomics completed a further €2 million investment in Meatable bringing the total amount invested in Meatable to €5 million, representing a fully diluted equity interest of 5.7%. Following the investment, Agronomics has recognised an unrealised gain of €2.95 million, and an IRR of 95%. This Series A round closed in March 2021, with Meatable raising US$ 47 million from leading life science and food investors including Section 32, DSM Venturing, Dr. Rick Klausner and Dr. Jeffrey Leiden, as well as participation from existing investors.
  • In March 2021, the LIVEKINDLY Collective completed a US$ 335 million Series B raise. Following this, the Company recognised an unrealised gain of US$ 2.55 million and an IRR of 73%. The Series B round was led by The Rise Fund and joined by Rabo Corporate Investments, S2G Ventures as well as other existing and mission-aligned investors.

Valuation: Eye Watering Premium to NAV May be Misleading

The share price of 24 pence represents an eye-watering premium to the last reported NAV per share of 5.6p. However, it is important to realise that under IFRS, the Company’s unquoted investments are carried at cost (or the most recent priced funding round valuation of the relevant company), and there have been no such revaluation events in the reported period, so the last NAV figure is not an accurate reflection of the current value of Agronomics’ investments. The recent share price surge reflects new financing rounds in the company’s investment portfolio and this valuation uplift catalyst is likely to continue. Moreover, the scarcity value of gaining exposure to this space will mean in my opinion, it will be very unlikely for the shares to ever trade without a premium to net asset value.

Richard Reed, Chairman of Agronomics, commented:

Under our valuation policy, it is not possible to reflect significant uplifts between valuation events such as a new third party funding, and therefore the Board believes that the stated NAV per share may not fully represent the current intrinsic value of the portfolio companies given their continuing progress and the comparable valuations we see for these types of companies in this rapidly growing sector.

To illustrate the potential undervaluation of portfolio companies based on historic NAV, let’s look at BlueNalu. Following a successful, oversubscribed, funding round of £10.0 million in October 2020, Agronomics completed three investments during the quarter. The Company purchased a US$5 million Convertible Promissory Note (“CPN”) from BlueNalu, an existing portfolio company focused on cell-based seafood products. Agronomics currently holds 192,005 shares of BlueNalu with a book value, excluding the CPN investment, of £2,602,456. Assuming the CPN is subscribed in full and a Qualified Financing occurs at a price equal to the agreed valuation cap of the CPN, Agronomics would have an approximate equity interest of 5.85% of issued shares following conversion and this would value Agronomics’ BlueNalu holding at approximately £13.4 million, a more than six-fold increase to the carrying value in the books.

The other key investments also have the potential for material near term valuation uplift. In December 2020, Agronomics completed a subscription of US$ 50,000 in the form of a Simple Agreement for Future Equity (“SAFE”) in CellX Limited (“CellX”). CellX is a China-based cellular agriculture company, focussing on cell-based pork and seafood products initially. CellX was founded in 2020, with the intention of showcasing its first prototypes in 2021. The SAFE will convert at the valuation cap divided by the company capitalisation at the next equity financing, which should give Agronomics an approximate equity ownership of 1.43%.

Agronomics also made a US$ 2.0 million investment in the form of a Simple Agreement for Future Equity (“SAFE”) in SuperMeat the Essence of Meat (“SuperMeat”). SuperMeat’s initial focus is on cultivated chicken products, and unveiled its sustainable restaurant experience, The Chicken, in Tel Aviv, Israel, earlier this year, where individuals are invited to taste SuperMeat’s cultivated chicken. The SAFE will convert at a price per share reflecting the lower of the valuation cap or at a 25 percent discount to the share price of SuperMeat’s next equity round. We expect that upon conversion of the SAFE at the completion of SuperMeat’s next equity fundraise and, assuming a pre-money valuation of US$ 150 million, Agronomics will hold approximately 2.22% of SuperMeat’s fully diluted share capital.

Risks

  • The company invests in early stage/higher risk ventures that do not generate revenues or profits (though the portfolio approach helps mitigate risk from individual startup failures)
  • The underlying portfolio companies are reliant on healthy fundraising markets to develop their concepts
  • This nascent industry may be hampered by slower than expected regulatory approvals
  • Agronomics is a loss making small cap company
  • Achieving price parity between lab versus conventional meat may take longer than expected
  • Risk of Manufacturing and logistical difficulties
  • Further dilutive share issues needed to fund expansion

I believe Agronomics is at an exciting point in its development as lab based alternatives gain regulatory approval and hit our shelves, turning its hitherto speculative investments into high growth portfolio companies generating revenues and profits. Although conventional valuation metrics look stretched, they probably grossly underestimate current portfolio company valuations.

This material is not investment research in accordance with the legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of the dissemination of investment research; and as such is considered to be a marketing communication.

All investments have the potential for profit and loss and your capital may be at risk. Past performance is not indicative of future results.

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