DISCLOSURE: THE AUTHOR HOLDS A SIGNIFICANT AMOUNT IN OWN PORTFOLIO.
Summary
AgroFresh (the Company) receives a Yay rating due to an impressive product portfolio, strong financial profile, and aligned management and board. Our target range is $7.54 – 8.74 per share.
Valuation
Know that everyone wants to get to the bones first so I’m switching up the format by including the summary and valuation first.
Company Overview
AgroFresh (Nasdaq: AGFS) is an AgTech innovator and global leader with a mission to prevent food loss/waste and conserve the planet’s resources by providing a range of science-based solutions, data-driven digital technologies and high-touch customer services. AgroFresh supports growers, packers and retailers with solutions across the food supply chain to enhance the quality and extend the shelf life of fresh produce. The AgroFresh organization has 40 years of post-harvest experience across a broad range of crops, including revolutionizing the apple industry with the SmartFresh™ Quality System for more than 20 years. This is powered by a comprehensive portfolio that includes plant-based coatings, equipment and proprietary solutions that help improve the freshness supply chain from harvest to the home.
Trends
The Company’s largest business segment is SmartFresh for Apples, consisting of 59% of TTM Q321 sales while the remaining was from other product solutions. The company plans to expand into other underserved crops listed below:
- Avocados
- Tomatoes
- Melons
- Broccoli
In addition to expansion into the aforementioned categories, the Company plans to expand into other geographies with its product, Harvesta, a near-term harvest solution designed to improve crop yields, VitaFresh Botanicals, which are plant-based edible coatings (shelf-life extension), and FreshCloud, a product designed to bring AgTech capabilities to agriculture (improves harvest decision making and quality control of crop).
Aligned Shareholders
While the shareholders may not strike out as anything abnormal, Paine Schwartz owns over a third of the company on a diluted basis. This private equity firm has a track record of successful exits in the agricultural and supply chain space and having Paine Schwartz as a significant shareholder aligns the value of the company with shareholders. As a significant shareholder, the private equity firm also occupies 2 board seats.
Experienced Management Team
Risks
- Sales concentration in Apples (SmartFresh)
- Highly depending on crop cycles and thus depending on weather and crop yields. While solutions are designed to improve yields, they cannot make up for drought or severe weather circumstances
- Susceptible to freight fluctuations from truck freight to ocean freight for internationally sourced produce
- Expansion into niche fruits could backfire in event of severe consumer trend shift
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