ANIC-dotes and cow hides

Progress at Agronomics

Hide among the cows. Man, if you hear mummmm, then run. Run for your life.

Dear reader

I want to start today’s article with something light hearted that even after all these years I find really funny, and only to be found in Britain I think. To my non-British readers perhaps you will agree and say ah yes the British Comedy very Monty Python etc or disagree, and perhaps in your country you also had fools dressing up in pantomime horses and going to your local supermarket crying “Muummmmm, where are you” in the midst of a horsemeat scandal.

Anyway, the video has a serious point too. Trust in our food chain is paramount. When we don’t know if the Beef is Beef we are in trouble. The many losers in that period were farms and farmers. The winners were companies like Quorn. Demand shot up. Similar boosts occurred during Veganuary (vegan January). Even the Oak Bloke has been known to enjoy a month of Veganism.

11 years ago before the horsemeat scandal fewer people had heard of Quorn and certainly there was no “Vegan aisle” in the supermarket. Times change.

Yet the history of Quorn, a vegetarian protein and meat substitute, began in the 1960s when British visionary J. Arthur Rank, also known as Lord Rank, set his scientists to work to find a sustainable source of protein. Rank's concern was that conventional farming would not be able to keep up with the growing population and food shortages that were predicted for the 1980s. After screening over 3,000 soil samples worldwide, Rank's team discovered a microorganism in the fungi family called Fusarium venenatum in 1967. The fungus was originally found in a field in Marlow, Buckinghamshire. A great British success story.

And one where profits quintupled between 2009 and 2017

Decades on from Rank, the UN believe our global agricultural system is close to a breaking point, and the implications for investors are these.

First that governments will increasingly tax unhealthy and processed foods. We all know about the £22bn black hole “discovered” by Labour. Yes capital gains is in the firing line but will Keir discourage the very growth he said was cornerstone. I think it is incredibly naiave to think the budget will fall solely on a tax grab on the rich via capital gains. Labour donors urge a red meat tax - will we see this? With harrumphing farmers being offered schemes of renewable energy to create the UK energy power house in compensation perhaps?

Second that Labour and many other governments are urging improvements (intensification) to agriculture. The problem with this approach is that improvements quite literally come at a cost. Pesticides destroy the good as well as the bad. Herbicides too. Fertilisers come at a cost. Labour are keen to speed up approvals and to this end formed a new quango to chivvy things along including approvals for new foods made by Cellular Ag.

Third in Maslow’s hierarchy of need food comes after water and shelter (if my memory serves). In other words pretty important. Being an island nation we more than most need to worry about food security.

Fourth that despite Trump’s close (ear) shave and the hasty conclusion that “he’s won the election”, I’m not so sure. If you’ve watched the Democrats post Biden bounceback there’s a real energy and VP candidate Walz is a firebrand. Love his inauguration speech. This is not a political blog and I merely point out that a Democrat government with UK Labour will push hard on green issues. The EU continue to push hard on green issues. And while the perception is that the rest of the world merrily burn coal while we “waste money” on green investment the reality of all I read if I visit the Hindustan Times or the Zimbabwe NewsDay all parts of the world are following the West. Zimbabwe will generate 16.5% of electricity via green power sources by next year for example.

So predictably perhaps the Oak Bloke moots Cellular Agriculture as an implication. Will its time come? Has its time come? I believe so.

The ANIC update speaks to 4 funding rounds in the quarter of some $50m - three at approximately equal value (same round) and one down round.

ANIC invested US$ 10 million in Liberation Labs Holding Inc. ("Liberation Labs") as part of a larger US$ 12.5 million round. The convertible debt is being used for the continued construction of the Production facility in Richmond Indiana - a picks and shovels play on Cellular Ag. The holding is carried at £25.8 million. Agronomics now holds 37.5% of Liberation Labs on a fully diluted basis.

Mosa Meat B.V ("Mosa Meat") raised €40 million in new capital to help finance the further scaling up of its production process and prepare its products for market entry. This new financing had no impact on Agronomics' carrying value and the Company holds an equity ownership of ~1.68% on a fully diluted basis.

Solar Foods Oy ("Solar Foods") raised an additional €8 million via Finish investment organiser Springvest Oyj. The additional funding is a subsequent close to Solar Foods' Series B round which took place in November 2023, bringing the total raise to €16 million. Following the first close of the Series B, Agronomics position was carried at £11.4 million. This subsequent close remained on the same terms as those set in November and there was no change to the value of Agronomics position.

Finally VitroLabs Inc. closed a US$ 3.5 million fundraise led by a climate tech focused venture capital firm. Following the close of this financing, the write down to Agronomics position was from £7,797.9k to just £418.6k. This is obviously a disappointing outcome but equally there has been zero news flow and nor has the Oak Bloke ever discussed VitroLabs before today. In other words, the fact it has gone back to market in a position of weakness isn’t entirely surprising. If this were a holding with solid news flow and close to commercialisation then it would be very different. But let’s see whether the fundraise can turn it around. Leather goods are closely linked with cruelty, and the fashion industry could well embrace a cruelty-free leather. It did so with Fur didn’t it? Is leather any different to Fur when it comes to cruelty?

VitroLabs was the inspiration for today’s cover picture, and a producer of lab-grown leather. It is backed by Leonardo DiCaprio but I’ll let BBC Click explain what they do:

A write down actually relatively rare for ANIC but explained the drop in NAV from 16.98p to 16.42p.

But hidden in these losses are gains too. The NAV at 31/3/24 was £171.4m which comprised of investments of £153.0m and £19.6m of uninvested cash.

The NAV at 30/06/24 is £165.7m comprising investments of £153.5m and £12.2m invested cash.

Eagle-eyed readers will see that the £7.4m loss in VitroLabs is offset in the quarter by £1.7m of gains in other holdings to get a £5.7m net loss.

At 30/06/2024, Agronomics’ net assets were £165.7 m ( £153.5m from investments and £12.2m of uninvested cash), a difference of £5.7m from the net assets at 31/03/2024.

Contrast this with the market cap today of £55m. (5.4p bid/5.5p ask)

If you strip out cash this is at a 72% discount. This is an astonishing discount in my opinion. Where in a single “bad” quarter £1.7m of gains on a £150m portfolio is £6.8m annualised or 4.5% p.a.

Over 4 years (from June 2020) the NAV has grown from 5.7p a share to (June 2024) 16.42p a share. That’s 288% NAV growth or 72% per year. Hence the comment 4.5% P.A. growth in the NAV is “bad”.

If we further consider the net £42.8m it would cost to buy the whole of ANIC (after cash is stripped out), then £25.6m is covered by Liberation Labs which is less than 6 months away from commercial income. This is a custom built facility for producing cellular agriculture at scale. It is close to cheap energy, cheap sugar, and plentiful labour. The 37.4% holding is estimated to be able to generate $8m (£6.2m) EBITDA, although we can expect this will be ploughed back in to scale the production further. £6.2m/£25.6m is a 25% operating profit - so likely to enjoy an uplift in valuation.

£15.6m covers SuperMeat - coming to a PetsAtHome later this year and thus is at a commercial stage too. Likely to enjoy an uplift too.

£1.6m remaining buys you £110.7m of other holdings. If you accept the logic that the above two holdings are “worth” their NAV and that you could realistically sell each for their book value then the remaining £110.7m of holdings is at an unbelievable 98.5% discount to NAV.

It’s also not true to imagine these £110.7m of other holdings are not at commercial stage either. Solein for example, has launched products in partnership with Ajinomoto Group in Singapore - a mooncake and icecream sandwich. These are completely dairy free and high in protein and nutritional value. Mooncakes if you wondering are a traditional gift given by Singaporeans to wish their family and friends happiness.

That £1.6m buys you parts of businesses developing and commercialising Cellular Agriculture and Precision Fermented Blue Tuna, Chicken, Cheese, Eggs, Hydrogen, Proteins, Pork, Beef, Seafood, Leather, Cotton, Coffee, Egg Protein, Cocoa and Palm Oil.

If any one of these develops as Quorn did, then this alone would cover the £55m market cap. The ANIC portfolio contains a myriad of Quorn-like holdings. Potentially much bigger than Quorn too.

I continue to watch this with eager interest and belief that this is substantially mispriced.

Regards

The Oak Bloke

Disclaimers:

This is not advice

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip".