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.
Eventful H2’22 with several triggers aheadAs 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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