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Written by 08:00 Analys, Research

AGTIRA: Another grocery giant in the books

With a newly signed LOI for an Agtira Greens with Coop Nord, part of Sweden’s second largest grocery group, Agtira can add another grocery giant to the order book. With multiple deliveries on their way to ICA and a high-value LOI signed with Greenfood earlier this year, the Agtira Farming-as-a-Service business model is starting to unfold and rollout is going according to plan. The stage is now set for further expansion, with details about a long-term financing solution and new deals as the main triggers for a revaluation, and we continue to see support for a fair value of SEK 32-46 per share in 12-24 months.

Andreas Eriksson | 2022-09-06 08:00 

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Potential catalyst and door opener
As Coop differs from ICA in how each individual store is run, where individual ICA store owners have a lot of freedom in how to run their store, Coop is a centrally run organization. This means that with the newly signed LOI with Coop, the biggest value is perhaps not the additional SEK 4-5m of sales each year, but the fact that Agtira has managed to get their foot into Coop as an organisation. These two combined account for about 70% of total grocery sales in Sweden. Since all the previous LOI:s with ICA have been converted into firm orders we believe it is likely this will be the case also with Coop. Once a big system like Agtira Greens is operational, the pace at which Coop can order additional ones should be higher than for ICA.
Timeline for positive cash flow hinging on business model
When Agtira transformed into the foodtech company we see today, the initial business model was to be a supplier of systems, with a recurring revenue based on the AI-software PICS installed in all Agtira systems. But due to the somewhat high entry barriers this creates for the company’s clients, Agtira developed a Farming as a Service (FaaS) business model, where Agtira owns and operates the system, while the end customer undertakes to buy all goods produced for the contracted period. The latter option enables larger recurring revenue while Agtira has to finance the construction themselves, which in a large-scale rollout puts a lot of pressure on the company’s liquidity. We therefore see a financing partner as the next crucial step, which would speed up the future rollout significantly. As for now, we estimate a 50/50 distribution between FaaS and direct sales, which would result in positive EBITDA by the end of 2023. However, a shift towards a higher share of FaaS-systems would push EBITDA breakeven further into the future.
Several triggers base for revaluation
With the first system now operational, and the branding opportunities of In Store-farming that comes with it, we believe it will be easier for Agtira to land additional firm orders. We expect that the recurring revenue from InStore will be notable during H2’22, but that it will take Agtira at least one more year to report black figures on EBITDA-level, with SEK 4m in 2023e and SEK 19m in 2024e, although this will depend somewhat on what business model Agtira will use going forward. While Norwegian sector colleague Kalera, a vertical farming company operational in the US, trades at a multiple of 45x Sales, Agtira trades at around 9x Sales 2022e, suggesting there is room for a considerable revaluation. As both macro trends and money flows speak in Agtira’s favour, we expect an eventful H2’22 where we believe a solution to financing and new firm orders to be the primary triggers. All in all, we continue to see support for a fair value of SEK 32 – 46 per share in 12-24 months.
Eventful H2’22 with several triggers ahead
As Agtira now have one system (InStore) operational, two soon to be up and running (InStore in Skellefteå and Complete in Östersund), and an additional 12 in the pipeline, the recurring revenues from the FaaS-model will have an impact most likely already next year. We especially look forward to seeing the Agtira Complete in Östersund, which will give Agtira the first real life proof of concept of their aquaponic system, estimated to yield SEK 4m annually. Besides finding a financing partner, we believe news and details concerning the sites for the construction of 10 Agtira Greens from the LOI with Greenfood will be the most important triggers ahead. Combined with the strong macro trends concerning food security and the recent money flows into the foodtech sector, is now Agtira in a strong position to move forward. With a combined DCF and target multiple valuation approach, we continue to see support for a fair value of SEK 32-46 per share in 12-24 months.
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