Plant Impact is making that tricky transition from innovative developer of crop enhancement products to cash generative supplier to the world’s largest agricultural market.
Few companies on AIM (Association for Automatic Identification and Mobility) seem to successfully navigate this road to commercial success so it is right the market has recognized Plant Impact’s (PI) achievement with the share price up 158% in the past year.
Investors will look at the 12-month chart and conclude they may well have missed the bus, Proactive Investors reported Saturday.
However, there is a very strong argument – supported by the numbers out there in the market currently – that this may just be the start of the re-rating.
Before assessing the investment fundamentals it is perhaps worth looking more closely at Plant Impact and the transformational deal with the German chemicals and drugs firm Bayer.
The green shoots of that collaboration were seen last September, while last week PI revealed it had blossomed into a much bigger deal worth up to $9m. PI has created and manufactures what it calls crop enhancement products.
Environmental Stress
Where fertilizers promote growth, pesticides combat pests and disease and genetic modification improves seeds, PI’s process changes a plant’s response to environmental stress such as heat.
The tangible financial impact is an improvement in grower returns.
Already out on the market are products such as Ametros, for European fruit trees, and eNTiton, which helps plants establish firmer roots.
The company’s latest innovation, Veritas, for soya beans, is the one it has partnered with Bayer.
It has received a $3m payment upfront and will get a further $6m for hitting certain milestones.
Longer-term PI will make its money by selling the product to Bayer.
Brazil, the super-power of world agriculture, is the first target market, although its deal now allows the German giant to take Veritas to neighboring Argentina and the US.
It will be sold alongside two existing Bayer products – Belt, an insecticide and its fungicide Fox. Veritas is applied during the flowering growth stage.
However, PI’s chief executive John Brubaker reckons there is the potential for “three to four” further Plant Impact products to be used at the earlier and later stages of the soya plant’s development.
New Application
Crucially, Bayer already has treatments for each part of the development cycle, so marketing a new application shouldn’t be too difficult or costly. So in Bayer PI now has a blue chip partner, and a credible growth strategy that will see it expand its range and geographic reach.
After cracking soya beans Brubaker wants to use the science to enhance wheat yields. “I’d say we are about two years behind [soya beans] but the strategy is similar,” says Brubaker.
“We see opportunities to bring to the market products that help the wheat product we plant perform better in a variety of environmental conditions. Wheat is a massive opportunity and strategically diverse from soya beans. And it is important for us to start thinking about diversifying crops, hemispheres and the commodity prices we are exposed to.”
The payment from Bayer will help bolster the finances of PI, while an update on February 9 revealed the group is trading profitably. This commercial transformation is charted in figures put together by the broker Peel Hunt. It forecasts PI will be modestly loss-making in the year to July this year. A first annual profit in the order of £1.2m ($1.85m) is expected 12 months later, rising to £3.3m. On that basis PI, at 41p a share, is valued at just over eight times 2017 earnings, which really doesn’t justify its growth potential.
Peel Hunt analyst Charles Hall recently increased his ‘risked’ price target to 70p a share from 50p and reckons the stock is worth just over £1 on an un-risked basis.
Success
“Clearly the [Bayer] relationship demonstrates the success of the Veritas product launch and confidence in the product pipeline,” says Hall.
“It also demonstrates Bayer’s commitment to adding crop enhancement to its portfolio of fungicides, insecticides and herbicides.
“A very important facet of this agreement is that Plant Impact can now tailor its pipeline products to complement Bayer’s product range, which should both improve efficacy and commercialization viability.”
“I think we are getting it right.”
