Dear reader,
Great to see a successful UK IPO. Bulletin boards include people saying they’ve bought in, and dismal to upbeat sentiment has turned on a sixpence.
The float means TEK’s holding in SALT is worth 9.91p a TEK share.
It’s the latest flavour. But instead of buying SALT, for a mere 4% more (than 53p per share) you could’ve today bought TEK and also own 91% of Guident about 7% of BELL, 40% of LUCY and 100% of ReVive.
In fact, based on today’s prices the combined value of TEK’s LISTED HOLDINGS you are getting TEK at a 15% discount. 12p worth of shares for 10.2p. By the way, that’s where you also get Guident, ReVive and TEK’s IP evaluation service business for free too.
Fully Diluted?
Did you know there are warrants and options which would dilute TEK to 58%? But one of the warrant holders is TEK. So if TEK exercised its warrants (at 47.3p) then its shareholding would be 63%?
The options/warrants are worth £4.4m capital into SALT. So the Fair Value would be boosted by fresh cash.
What’s the excitement with SALT?
I think I’ve covered the rationale in my articles 2 Mysteries, What Happens Next, and Introducing SALT. The number of people who’s ever read 2 mysteries is 10X that who’ve read my earlier 2 articles so I would encourage you to read those too, if you’re part of the 9X people who’ve not. (that’s about 3,000 people to give you an idea how popular 2 Mysteries was!)
Today, I wanted to provide some additional insights and new content which, reader, I hope you find useful.
The problem restated:
Governments are struggling to fund healthcare. Public Health England is just one of the bodies that recognise the critical problem that lifestyle drives later medical need, and have put pressure on industry to improve. This year is a critical year for industry to find a solution to achieve a 5-10% reduction. Reducing salt affects flavour but also the shelf life since salt is a preserver. It’s a dilemma for industry. It’s the bad that tastes gooooood. A dilemma for anyone who enjoys their food too!
Microsalt has two patents essentially. The first is for the method of using nanoparticles. That patent is granted in the US (until 2030) and pending in a dozen major other countries including the UK, China, Oz, Brazil, Canada, India, Japan, Mexico and Russsia. So that covers about 3 billion people.
A 2nd patent (also pending) is part of the UK’s Salt reduction targets specifically covers bread products. SALT has a patent pending specifically for sodium reduction for bread products.
What other new aspects excite me?
Well SALT’s Chair, who is ex-Sainsbury’s Judith Batchelor OBE for a start. Why?
Apart from her experience at Sainsbury’s (as Director for overseeing the Sainsbury’s Brand), her current involvement as Chair at the FDF - the Food and Drink Federation.
… Which is a powerful voice for food manufacturing… more than 1000 members.
Opportunity for growth
SALT’s admission document shows the opportunity for growth is across other salt varieties such as Himalayan salt, sea salt, African black salt, and others without any alteration or additional cost incursion to the production process. The manufacturing process is agnostic to salt type, so any other salt variant from any location can be used depending on consumer demand.
This may also extend into seasoning lines, additional colours and flavours, and expansive bespoke B2B applications.
Furthermore, MicroSalt can be used within a wide variety of foods including crisps, popcorn, nuts, protein bars, pancake mix, breakfast cereals, premade meals and breads.
Readily scalable production process and supply chain MicroSalt is manufactured using a spray drying process which is a well understood method of production across multiple other foodstuffs. The Group has patented a specific application of this process which allows the Group to produce MicroSalt on a large scale. No additional bespoke equipment is required to produce MicroSalt.
As part of the IPO approx. net £2.5m cash was raised. This is being channeled into channel. Focusing on growing the sales and marketing for SALT. Now it is a PLC not a LTD that gives SALT a higher profile, especially dealing with B2B global food manufacturers. Expansion into Canada, Brazil, Mexico, are seen as important but also to deepen sales into the UK and US.
Strengthening legislation in these countries is a huge tailwind.
Opportunity for Production:
Meanwhile because SALT has working relationships with three existing manufacturing facilities across the US capable of producing up to 5,444 tpa of MicroSalt, it is capital light. In time, it could increase margins by manufacturing its own salt and the capital cost per plant would be around £5m which could produce around 2,000 tonnes of product per annum. Preliminary talks have begun for SALT’s first manufacturing site in the Eastern US.
MicroSalt is manufactured using a spray drying process which is a tried and tested method of production across multiple other foodstuffs. No additional bespoke equipment is required to produce MicroSalt and therefore many contract manufacturers with spray drying capabilities that can be used by SALT. Currently the Group outsources manufacturing across facilities in Ohio, New York and Wisconsin.
The production process requires salt, clean water and maltodextrin mixed into a solution, which is then spray dried to form MicroSalt. The spray drying process involves injecting the solution into the top of a drying chamber through a nozzle to reduce the solution to microscopic particles. This chamber is then heated to a specified temperature, up to a maximum of around 200 degrees Celsius, which causes the solution to evaporate leaving behind MicroSalt particles which are funnelled into a fluid cooler at the bottom of the drying chamber. The particles are separated from the drying gas in this cooler through filtration, and the gas is then exhausted.
Opportunity for Profit - My Model
These are my estimates of B2B and B2C profitability.
Based on the October 2023 balance sheet which suggested a £5m run rate of revenue, I’m inferring gently increasing sales during 2024 for B2C with an assumed 20 tonne/month B2B order, joined by a 2nd order in Q2, and a 166 tonne/month order in H2 2024 in B2B. This uses about 30% of capacity.
At these levels SALT breaks even.
For the sharp eyed, in my article “2 mysteries” I claimed SALT was already profitable in 2023. Based on the balance sheet changes that must be true, at least YTD to October.
In 2024, I’m working on the basis that costs increase in 2024 for salaries and listed company costs too. I estimate a negligible 2024 net profit as a base line profit with the ability to surprise to the upside.
Exiting 2024 with a run rate of just 206 tonnes a month B2B sales would be, so to speak, a few specks in the world ocean of demand.
STOP PRESS: Update 5th Feb 2024:
I have previously spoken to how my research led me to believe “Customer B/C” in SALT’s coded customer list is actually Pepsi. A large brand in Mexico (owned by Pepsi) is Sabritas. Interesting, then, that on Pepsico.com.MX Sabritas ESG goals it speaks to the following (I translate):
“We have a strong focus to improve our customers’ experience to enjoy Sabritas crisps. In 2015 we committed to have a positive impact on the planet and on society. As part of this pledge by 2025 we want to have achieved an important reduction in our use of Salt.”
This picture is hyperlinked to their web site for you to check it out for yourself.
Having watched today’s SALT presentation I believe it’s appropriate to include Customer D’s 1 line at 500KG/hr per line. Assuming just a single line this adds 1,092 tonnes a quarter (0.5 x 24 x 91 = 1092). I also assume 1,000 tonnes in Q4. The net profit jumps from £43k to a million as a result.
But Customer B placed orders for 29mT in 2023 we are told. Are my profit models hopefully pessimistic and if we can expect 29mT a quarter then the net profit jumps from a million to £25.4m.
The scary thing is that’s just customer B who incidentally are “adding additional lines” to the 29mT. What about customer A, C, D and E? And the rest of the alphabet. Could this be a Unicorn, worth a billion or more? Do we dare to dream that?
This is not advice.
Oak
I am sure your assessment of SALT is excellent.
However I just wanted to point out that governments can get things wrong.
Many people believe that salt is essential for our hydration and diet and that restricting salt intake can actually cause health problems!
Here is the alternative argument that salt is essential:
https://dailynewsfromaolf.substack.com/p/how-does-salt-restriction-lead-to?utm_source=profile&utm_medium=reader2