Agronomics — Bright outlook for top investor in revolutionary sector

Agronomics (AIM: ANIC)

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Research: Investment Companies

Agronomics — Bright outlook for top investor in revolutionary sector

Agronomics (ANIC) invests in cellular agriculture companies. This note provides an update on our January 2022 initiation note, following the release of ANIC’s interim results and the announcement of several new and follow-on portfolio investments. Two of these investments have resulted in uplifts to the valuation of ANIC’s initial investments, which will add to the steady rise in its NAV since inception, as will ‘further significant developments’ in a number of portfolio holdings, foreshadowed in the latest interim report. Recent share price weakness, driven by broad market developments unrelated to ANIC’s portfolio holdings, has seen its substantial premium to NAV narrow sharply. However, several factors should provide underlying support for the share price, including the company’s conservative valuation policy, its scarcity value as the only UK-listed investment vehicle targeting cellular agriculture and this industry’s very favourable outlook. This suggests ANIC’s current relatively low share price and narrow premium provide investors with the opportunity to gain exposure to this growing, game-changing sector at an attractive level.

Joanne Collins

Written by

Joanne Collins

Analyst, Investment Trusts

Investment Companies

Agronomics

Bright outlook for top investor in revolutionary sector

Investment trusts
Cellular agriculture

22 March 2022

Price

18.8p

Market cap

£178m

AUM*

£136m

NAV**

14.32p

Premium to NAV***

31.3%

*At 31 December 2021. **Including income at 31 December 2021.

***Based on current share price and last published NAV,

Yield

0.0%

Ordinary shares in issue

947.3m

Code/ISIN

ANIC/IM00B6QH1J21

Primary exchange

LSE

AIC sector

N/A

52-week high/low

37.0p

14.0p

NAV* high/low

14.32p

5.56p

*Including income.

Net gearing

0.0%

Net cash (21 March 2022)

£55.0m

Fund objective

Agronomics’ objective is to create value for shareholders by investing in companies that operate in the field of cellular agriculture, which derives conventional agricultural products directly from cell culture and fermentation, without the need for animals. It encompasses the concept of cultivated meat, precision fermentation and the use of microorganisms to grow valuable, formerly animal-derived ingredients and materials.

Bull points

A rare opportunity to gain early-stage exposure to a new, game-changing sector, with major growth potential.

An experienced, well-respected team with access to new and follow-on investments in cellular agriculture.

The sector offers potentially huge ESG positives that could make a significant contribution to climate change mitigation, animal welfare and human wellbeing.

Bear points

Investors need to give the sector time to overcome technical and regulatory barriers.

Early-stage nature of ANIC’s investments makes them difficult to value by standard means.

The liquidity of ANIC’s shares has resulted in some recent sales as investors raise funds to meet redemptions driven by recent geo-political uncertainties.

Analysts

Joanne Collins

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Agronomics is a research client of Edison Investment Research Limited

Agronomics (ANIC) invests in cellular agriculture companies. This note provides an update on our January 2022 initiation note, following the release of ANIC’s interim results and the announcement of several new and follow-on portfolio investments. Two of these investments have resulted in uplifts to the valuation of ANIC’s initial investments, which will add to the steady rise in its NAV since inception, as will ‘further significant developments’ in a number of portfolio holdings, foreshadowed in the latest interim report. Recent share price weakness, driven by broad market developments unrelated to ANIC’s portfolio holdings, has seen its substantial premium to NAV narrow sharply. However, several factors should provide underlying support for the share price, including the company’s conservative valuation policy, its scarcity value as the only UK-listed investment vehicle targeting cellular agriculture and this industry’s very favourable outlook. This suggests ANIC’s current relatively low share price and narrow premium provide investors with the opportunity to gain exposure to this growing, game-changing sector at an attractive level.

NAV performance relative to benchmark since inception

Refinitiv, Edison Investment Research. Note: Total returns in sterling.

Highlights

Agronomics reports its NAV quarterly. At end December 2021 it was 14.32p per share, up from 12.99p per share at end September 2021.

This represents an increase of 10.24% over the quarter, 157.6% over the 12 months to end December 2021 and 69.1% since the fund adopted its current investment policy in April 2019.

The increase in the NAV is due to unrealised gains on the revaluation of ANIC’s portfolio investments in VitroLabs and GALY (see below for details).

ANIC has recently made three new investments, in Geltor, Onego Bio and Good Dog Food, diversifying the portfolio by increasing exposure to precision fermentation and pet food. It has also made two follow-on investments in existing holdings SuperMeat and GALY (details over).

These latest follow-on investments have resulted in uplifts to the valuation of ANIC’s initial investments, which ensures a further increase in the NAV when it is next published, at end March 2022.

We continue to see significant scope for additional NAV increases, as ANIC’s portfolio holdings progress towards commercial viability.

The team’s view: Portfolio set for future growth

Agronomics invests in companies producing environmentally friendly alternatives to traditionally produced meat, dairy, seafood, leather, cotton, proteins and other products, via cellular agriculture (Exhibit 1 provides a full list of the company’s 21 portfolio holdings). ANIC’s chairman, Richard Reed is very positive about the outlook for this sector. He views the next 12 months as pivotal, as US regulators are expected to approve the sale of several cultivated meat products. China has also recently announced its five-year agricultural plan, which refers to cultivated meat for the first time.

Reed is equally upbeat about ANIC’s prospects in the near and longer term. He says the company is expecting ‘significant developments’ in a number of its portfolio companies that should positively impact their valuation in coming months. And looking further ahead, he believes the current investment portfolio shows ‘considerable promise for future growth, given the scale of opportunity to invest in the nascent alternative foods sector’.

Recent investments and current portfolio positioning

ANIC’s advisory team continues its efforts to enhance this positive outlook and create greater value for shareholders, by seeking new investment opportunities. The company has made several key announcements since the publication of our initiation report in January 2022. In February 2022, it acquired a 2.05% share in Geltor, a precision fermentation company focused on producing designer proteins for use in the cosmetic industry, as well as in food and beverage production. Geltor’s intention is to develop ingredients that can replace traditional animal-derived proteins, including collagen. ANIC acquired this position from an existing shareholder for US$9.5m, which equates to a portfolio weighting of 5.0%, based on the latest reported NAV. The acquisition was funded by US$6.8m cash, combined with the issuance of 8.7m new ordinary shares worth a total of US$2.7m in value. These shares are subject to a lock-in and orderly market agreement, with a vesting schedule comprising three tranches stretching over the next two years.

ANIC has also announced a €6.9m investment in Onego Bio, as part of a €10m seed fundraising round. This investment was funded by cash and will give ANIC a 19.94% equity stake in Onego Bio and the right to a board seat. The holding represents 4.21% of ANIC’s portfolio, based on the last NAV. Onego Bio is developing sustainable and animal-free egg protein, with the aim of solving the environmental and animal welfare problems associated with egg production. The company is a spin-off from VTT Technical Research Centre of Finland, one of Europe’s leading research institutions.

Onego Bio was founded in 2021 and is yet to generate revenue, incur significant costs or report its net assets, but Anthony Chow, a member of ANIC’s advisory team, considers it one of the company’s ‘most exciting’ holdings. He argues that investments in precision fermentation broaden and diversify the portfolio away from cultivated meats. Perhaps more importantly, products using fermentation technology are more advanced than the development of cultivated meats, and thus closer to realising commercial viability. Onego Bio shares the same fermentation technology as Perfect Day, the animal and dairy protein producer whose products are now being trialled in Starbucks’ cafes in Seattle, in the United States. This means the regulatory framework faced by Onego Bio’s products is well defined and they are expected to be on the market in about 18 months.

Most recently, Agronomics announced its first joint venture, launching Good Dog Food with joint venture partner, Roslin Technologies, a food biotechnology company. Good Dog Food will develop a range of eco-friendly pet food products made using cultivated meat. Roslin Technologies is partly owned by the University of Edinburgh and has preferential intellectual property rights from Roslin Institute, which is famous for Dolly the sheep, the world’s first cloned adult mammal. The seed funding (less than £1m) ANIC has provided for this joint venture is its first investment in a UK-based cultivated meat company. Jim Mellon will chair Good Dog Food’s board.

ANIC’s new investments in Geltor, Onego Bio and Good Dog Food take the number of its portfolio holdings to 21 (Exhibit 1). In addition, it has previously disclosed an interest in investing in several other projects, with more announcements on these projects expected in due course.

Agronomics has also made follow-on investments in some of its existing portfolio holdings. Earlier this month, it co-led the Series A financing for SuperMeat, with an additional cash investment of US$10m that gives it a 7.77% equity stake in the company (up from 2.2% previously), along with the right to a board seat. ANIC will carry the aggregate position in its accounts at a book value of US$19.35m, subject to audit, including an unrealised gain of US$6.95m. This valuation means the company’s SuperMeat position will represent approximately 10% of its NAV.

SuperMeat is a leading cultivated chicken meat company, based in Israel. In a taste test in January 2022, a panel of culinary experts judged SuperMeat’s unseasoned chicken to be indistinguishable to conventional chicken. The company is seeking regulatory approval in the United States and Singapore for its chicken to be used in consumer products. SuperMeat intends to use the Series A financing to establish its first production facility, on the expectation it will be able to market its chicken products within the next 24 months.

ANIC’s follow-on investment in SuperMeat is its largest transaction to date, and its new investment in Geltor is almost as large. Larger investments appeal to Chow, because they have the advantage of providing ANIC with the means to have a greater impact on the development of their portfolio holdings, via board seats and voting rights. This trend towards larger investments also reflects the fact that ANIC has cash available to invest thanks to capital raisings conducted in May and December 2021 (see initiation note for details).

Agronomics made another, smaller follow-on investment in March, providing a further US$1m cash to GALY, an existing portfolio holding focused on plant cell culture. This company possesses disruptive technology for growing cotton from cells in a laboratory, rather than using traditional soil-based, water- and pesticide-intensive farming methods. The additional investment gives ANIC a 4.11% equity stake in GALY, which it will carry at a book value of US$3.47m (unaudited), representing an unrealised gain of US$1.97m. The holding will account for approximately 1.82% of NAV.

The other significant news on ANIC’s portfolio holdings since the publication of our initiation report relates to BlueNalu, a producer of cultivated seafood, focused on bluefin tuna. ANIC holds 5.85% of equity in this company, a position which represents 4.8% of ANIC’s portfolio on an NAV basis. In January 2022, BlueNalu agreed a partnership with Food & Life Companies, to supply leading sushi brands such as Sushiro and Kyotaru with BueNalu’s lead product, cultivated bluefin tuna.

Exhibit 1: Portfolio holdings (at 21 March 2022)

 

Current value

ANIC Investment

Stage

ANIC’s ownership share (%)

Category

Investment rationale

BlueNalu

USD 8.55m

USD 8.0m

Pre-Series B

5.85

Cultivated seafood

Highly experienced team with +30 years' food industry experience. Leader in cellular aquaculture with a species agnostic platform to produce whole muscle fish fillet

VitroLabs

USD 12.75m

USD 10.5m

Series A

11.69

Cultivated leather

Scalable tissue engineering platform. Huge USD52bn global leather goods market. Revenue generation expected soon

Formo

EUR 10.7m

EUR 4.15m

Series A

5.94

Fermentation derived dairy protein

Producing genuine dairy proteins, focused on cheese production. Technology reduces industry inefficiency & animal welfare concerns of raising dairy cows

Meatable

EUR 8.15m

EUR 5.2m

Series A

5.84

Cultivated pork

Unique technology for rapid transformation of stem cells to muscle and fat. Long term sector experience

The LIVEKINDLY Collective*

USD 5.55m

USD 3.0m

Seed

1.00

Plant-based chicken

Strong operational management team including former Unilever North American president. Raised $200m in largest founder round in history of food

Mosa Meat

EUR 3.5m

EUR 3.5m

Series B

1.62

Cultivated beef

Leading European cultivated meat producer with clear regulatory pathway. Advanced product development with muscle, fat and connective tissue

Solar Foods

EUR 6.0m

EUR 6.0m

Series A

5.80

Air protein

Technology uses carbon dioxide from the air & water electrolysis to produce sustainable protein. Versatile application as an alternative to soy & pea protein

Tropic Biosciences*

US$3.0m

US$3.0m

Series B

2.95

Gene-edited seedlings

Developing high-performing commercial varieties of tropical crops, mainly coffee and bananas

SuperMeat

US$19.35m

US$12.0m

Series A

7.77

Cultivated chicken

Operational pilot plant capable of producing several hundred pounds of meat per week

New Age Meat

US$3.6m

US$0.7m

Series A

< 4.00

Cultivated pork

First company to produce a meat-based tasting prototype sausage. Preparing for market entry through hybrid products

GALY

US$3.47m

US$1.5m

Series A

4.11

Cultivated cotton

Producing cotton grown directly from cells. Minimal footprint vs intensive cotton crops

Shiok Meats**

US$0.64m

US$0.5m

Seed

1.60

Cultivated seafood

Combined scientific and entrepreneurial experience of co-founders. First cultivated meat company in SE Asia

Rebellyous Food

US$0.35m

US$0.35m

Series A

1.20

Plant-based food

Revenue generating with corporate cafeterias trialling product via Compass Group

Bond Pet Foods

US$0.15m

US$0.15m

Seed

3.00

Cultivated pet food

Uses cellular fermentation to produce animal proteins. Targeting the US$25bn pet food market

CellX

US$0.3m

US$0.05

Pre-Seed

< 2.00

Cultivated meat and seafood

First investment for ANIC in China, which adds to portfolio’s geographical diversity. Has technically strong founders. Huge Chinese animal protein market ripe for disruption

California Cultured

US$2.2m

US$2.2m

Seed

18.33

Cultivated cocoa

Harnesses cell culture technology to produce cocoa products. Potential to solve deforestation concerns related to conventional chocolate production

The EVERY Company

US$8.0m

US$8.0m

Series C

< 2.00

Fermentation derived egg proteins

Precision fermentation company focused on the commercialisation of proteins traditionally derived from animals. Broadens ANIC's portfolio into another protein category.

Ohayo Valley

US$1.5m

US$1.5m

Pre-Seed

18.75

Cultivated beef

Company established by a leading cultivated meat scientist. First product is Waygu beef. ANIC's first investment in whole cut beef products which constitute 60% of all beef sales in the US.

Geltor

US$9.5m

US$9.5m

Secondary purchase

2.05

Fermentation derived proteins including collagen

Produces bio-designed proteins conventionally derived from egg proteins. Revenue-generating company with 4 products on the market, containing human collagen and elastin for use in cosmetics.

Onego Bio

€6.9m

€6.9m

Seed

19.94

Fermentation derived egg proteins

Tech platform established at the VTT Institute in Finland. Utilises the same methodology as Perfect Day, the global leaders in precision fermentation.

Good Dog Food

<£1m

<£1m

Seed

N/A

Cultivated meat for pet food

ANIC's first joint venture and first UK-based investment, in partnership with Roslin Technologies, a food biotech company famous for Dolly the sheep, the world's first cloned adult mammal.

Source: Agronomics, Edison Investment Research. Note: *Production not based on cellular agriculture. **Jim Mellon holds an additional personal interest in this company.

Performance: NAV set for further increases

Exhibit 2: Five-year discrete performance data

12 months ending

Share price (%)

NAV (%)

MSCI World (%)

CBOE UK All Cos (%)

28/02/18

-

--

4.0

4.4

28/02/19

-

--

2.0

1.6)

29/02/20

-

--

6.9

(2.1)

28/02/21

180.8

6.9

16.4

2.8

28/02/22

3.5

157.6*

13.8

16.7

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *Using NAV at end February 2022.

Agronomics is a relatively new investment vehicle. It adopted its current investment strategy in April 2019. Early performance has been positive. The company reports its NAV quarterly and the latest available NAV, for the period ended 31 December 2021, is 14.32p per share, up from 12.99 at end September 2021. This represents an increase of 10.24% over the quarter, 157.6% over the 12 months to end December 2021 and 69.1% since April 2019.

Net assets increased to £134.3m at end December 2021, from £103.9m at end September 2021, including cash and cash equivalents of £45.3m (versus £55.1m in September). The increase in the NAV over the quarter was mainly due to a fundraising round in December 2021, which raised total funds of £31.0m and resulted in the issue of 138.4m new ordinary shares. The NAV also benefited from unrealised gains on the revaluation of investments held in VitroLabs, a US-based cultivated leather producer (£1.8m) and GALY, a lab-grown cotton producer discussed above (£1.5m).

Announcements since the end of December relating to a total of US$8.92m of unrealised gains in SuperMeat (US$6.95m) and GALY (US$1.97m) (discussed above) mean ANIC’s NAV will rise further during the current quarter. And, as we outlined in our initiation report, we see scope for further significant NAV increases, as ANIC’s portfolio holdings progress towards commercial viability.

Exhibit 3: Investment trust performance to 28 February 2022*

Price, NAV and benchmark** total return performance, one-year rebased

Price, NAV and benchmark** total return performance (%)

Source: Refinitiv, Edison Investment Research. Note: *Using NAV at end December 2021. **Although ANIC does not have a benchmark, the CBOE UK All Companies Index is included for comparative purposes. Since inception (SI) figures are annualised.

Increases in Agronomics’ share price have outpaced the rise in its NAV. Since the adoption of its current investment strategy in April 2019, ANIC’s shares are up over 300%. However, the share price has been under pressure in recent months, declining by around 40% since early November 2021. Several adverse influences have been at work, but none related specifically to ANIC’s portfolio holdings. For one, investors have begun to reassess very high valuations in the broader alternative protein sector. For example, the sector’s ‘poster child’, the plant-based protein producer Beyond Meat, has seen a dramatic fall in its share price over the past year, following disappointing sales and earnings. Investors may also be losing patience with the lengthy wait for regulatory approval for some alternative protein products. For instance, US regulatory approval for BlueNalu’s cultivated seafood is widely anticipated and considered imminent, but it has not yet been forthcoming. Chow cites a recent survey by Nielsen, a consumer data company, as a further possible dampener on market confidence in the outlook for alternative, plant-based meat products. The survey showed a 3% reduction in sales of these products in December 2021.

Chow also believes the outbreak of war in Ukraine has adversely affected ANIC’s share price. As usual in times of uncertainty, investors scrambled for cash and other safe-haven assets, and some funds that hold ANIC shares have been hit by redemptions. It appears these funds have sold ANIC’s relatively liquid shares to meet their liquidity requirements. In Chow’s view, the confluence of these events has resulted in ANIC’s shares offering ‘very good value’ at current levels.

Exhibit 4: Share price and NAV total return performance, relative to indices* (%)

 

One month

Three months

Six months

One year

Since inception

Price relative to CBOE UK All Companies

(1.1)

(30.4)

(9.4)

(11.3)

62.2

NAV relative to CBOE UK All Companies

0.1

5.6

18.9

120.6

19.7

Price relative to MSCI World

1.6

(23.3)

(4.2)

(9.1)

4.6

NAV relative to MSCI World

2.7

16.5

25.8

126.3

11.4

Source: Refinitiv, Edison Investment Research. Note: Data to end-February 2022. Geometric calculation. *Although ANIC does not have a benchmark, the CBOE UK All Companies index and MSCI World Index are used for comparative purposes.

Exhibit 5: NAV performance vs benchmark* since adoption of current investment strategy

Source: Refinitiv, Edison Investment Research. Note: *Although ANIC does not have a benchmark, the CBOE UK All Companies index is included for comparative purposes.

Premium should be supported by several factors

ANIC’s share price usually trades at a substantial premium to its cum-income NAV. The premium peaked at around 500% in May 2021, but has since narrowed dramatically, in part due to the issuance of new shares, and as a result of the recent share price decline discussed above. Based on the current share price and the end December NAV, ANIC’s share price is presently trading at a premium of 31.3% (Exhibit 6).

However, several factors should provide underlying support for ANIC’s share price and hence its premium. These include the company’s conservative, ‘backward-looking’ valuation policy, which has the effect of limiting NAV uplifts (as discussed in our initiation report). ANIC’s shares also possess scarcity value, as it is the only UK-listed investment vehicle targeting cellular agriculture, and investor interest in the broader sector is growing rapidly as alternative protein products prove their commercial viability.

While renewed upward pressure on the premium will be limited by future NAV uplifts and by further rounds of equity issuance as ANIC seeks to meet its funding requirements, these supportive factors suggest ANIC’s premium may not remain at its current, relatively narrow level indefinitely. But while it does, it may provide investors with the opportunity to gain exposure to this growing, game-changing sector at a particularly attractive price.

Exhibit 6: Premium/discount since inception (NAV including income), %

Source: Refinitiv, Edison Investment Research


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This report has been commissioned by Agronomics and prepared and issued by Edison, in consideration of a fee payable by Agronomics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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General disclaimer and copyright

This report has been commissioned by Agronomics and prepared and issued by Edison, in consideration of a fee payable by Agronomics. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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