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Date : 19/04/2021

Wide Open Agriculture

ASX :

WOA

Market Cap : $55.02 Million

Buy

52 Week Range : $0.125 - $1.85

Share Price : $0.78

A company with a highly scaleable business model, a robust market outlook, and a healthy balance sheet. A "Buy" from us.

Company Analysis

Wide Open Agriculture (ASX: WOA) is a regenerative food and agriculture company. WOA operates in the Wheatbelt in Western Australia and they are looking to regenerate the soil after several years of bad farming practices have led to soil erosion. They have 3 lines of business – regenerative foods, oat products, and plant-based protein that is made from lupin. They operate under the brand Dirty Clean Food that has gone from a concept to first sales in under 12 months. This business model gives WOA an edge in the long-term. WOA will be in the B2B market to supply firms such as Beyond Meat with plant-based protein that is made from lupin. Western Australia is the world’s leading grower of Australian sweet Lupin, which is simply a yellow pea. Lupin has the characteristics of a superfood in that it is half protein. It has the highest level of protein of any legume. Legume matches the protein levels we see in soy, and where it has an edge over soy is that lupin contains twice as much fibre and half as less fats than soy, and these are just differences in macronutrients. Hence, this leg of the business is extremely scalable and has high growth characteristics. It’s worth noting that the market for soy is worth $8 billion per annum, and lupin characteristics give it the potential to sit right alongside soy, if not reach over it.

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Source: WOA

The Dirty Clean Food brand, a very clever oxymoron will be leveraged for the B2C side of WOA’s business. The firm produces several regenerative food products and oat-based products such as oat milk that are becoming very popular. The oxymoron has also proved to be quite catchy among Australian consumers and as far as brand allegiances go, it is a desirable characteristic to have. These two legs of the business may not be as scalable as the plant-based protein; however, they will play a crucial role as consumer preferences over where food comes from is evolving now. Regenerative food is this interesting style of farming that is becoming popular among farmers, and consumers are becoming way more conscious about the impact food has on their body and also the global environment. This has also been evident in the adoption of plant-based protein all over the world. The success of Beyond Meat, Impossible Foods, and Oatley (all billion companies) cannot be overstated enough to emphasise that climate change and protecting the environment will be at the core of how food is produced in the future, and what products are available to us as consumers.

Products are chosen based on their market potential and the positive impact they deliver to farmers, their farmland, and regional communities. WOA operates under a ‘4 Returns’ framework and seeks to deliver measurable outcomes on financial, natural, social and inspirational returns. They are currently aiming products at Australian and South-East Asian consumers, however, there is reason to believe that Europe may be of significant importance to their strategy due to two reasons – Europe is leading the rest of the world when it comes to combating climate change through policies and investment (which is backed by consumer sentiment), and Wide Open Agriculture is listed on the Frankfurt Stock Exchange as well. They are the world’s first ‘4 Returns’ publicly traded company.

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Source: Tradingview.com

WOA listed in 2018 and the share price has really come off age in the past year. WOA shares have returned 675% during this period. There is also a lot less speculative pricing with its shares – indicated by the very low trading volumes that can be seen in the chart above.

Company Updates

WOA made several noteworthy announcements during the past year that have influenced share price movements.

CSIRO engaged for plant-based protein development

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) has been contracted by WOA to provide research services to scale-up Curtin University’s novel protein extraction process from lupin seeds. The Company and Curtin university will work closely with CSIRO’s Food Innovation Centre and utilize its pilot-plant food processing facilities to assist and accelerate the scale-up progress of extracting protein from lupin. The total cost of the project is estimated to be $115,000.

OatUp Launch

WOA completed the launch of OatUp under the Dirty Clean Food brand back in October 2020. The product with its regenerative farming techniques has the potential to be disruptor to other plant based milks such as almond milk and soy milk. It offers a creamier flavour with the ability to froth. OatUp enables WOA to enter the $2.8 billion plant-based milk market. With the exclusive launch underway, the national roll-out across Australia began in Q1 2021.

A feasibility study is also being conducted in Europe with the thought of launching the oat milk product in the lucrative European market. The study has been supported by a grant from the WA State Government and aligns with their vision to bolster food industry development in WA.

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Source: WOA

WOA has hit several milestones in the build up to the launch on-time, and oat up has a very high potential to become the mainstream milk product in Aussie consumer shelves. The milestones in the near future can be seen in the above chart and it gives us an idea and a timeline to when there may be market moving announcements.

Lupin Protein Updates

WOA collaboration with Curtin University was a success. There has been optimisation work going on and it has now been completed. The processes included streamlining process, reduction in processing steps, confirmation of key temperature conditions, and confirmation of protein yields from lupin. Curtin Uni were then known to be working on preparing for the testing and validation phase of the food grade samples provided from the pilot scale trials.

Following on, WOA added in December 2020 that it has successfully produced food-grade, lupin protein isolate using industrial grade food processing equipment, potentially unlocking previous barriers for lupin to be used in new applications across a wide range of food sectors. WOA reported that it has exercised its option pursuant to the Option and Licence Agreement to acquire the exclusive commercial licence for the proprietary modified lupin protein technology developed and patented by Curtin University. This takes the Company closer towards creating a novel plant-based protein that can be used to create multiple products, including alternative meats, plant-based beverages and gluten-free alternatives of bread, pasta, and noodles.

WOA announced earlier this year that it has signed a Research Services Agreement with Curtin University to conduct early-stage product development using food-grade lupin protein and has secured Stuart Johnson, the co-founder of Curtin University’s lupin protein technology, as a consultant to WOA. The Research Agreement is valued at $53,672. This agreement brings the Company closer towards commercialising the proprietary plant-based lupin protein technology and will become the cornerstone research used to develop and launch products into multiple plant-based food categories. The first step Curtin will take towards formulating food products is to understand how the proprietary lupin protein functions as a texturizing food ingredient in simple foods systems, known as matrices. Development activities will be conducted at Curtin University by the original researchers. Curtin estimates this initial research program will run for 8-10 weeks. Therefore, an update is now due and has the potential to be a catalyst for the WOA share price.

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Source: WOA

The entire process is advancing very rapidly towards commercial products. The timeline and the milestones for WOA can be seen in the above picture.

Industry Analysis

The dairy consumption in Australia is 9 billion litres, and studies have revealed that plant-based milk consumption in Australia is 7% and in the USA is 14%. The sales in oat milk are outpacing other alternative plant-based milk. In 2020, oat milk sales grew by 108% while more established products such as almond and soya milk plateaued. The global market for oat milk alone is estimated to be over US$4 billion and it is estimated to grow at 9.8% CAGR (Compounded Annual Growth Rate) through to 2027.

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Source: WOA

Plant-based protein is a key ingredient in high growth consumer food alternatives within the alternative meat, dairy, beverage, and egg sectors. The global market is estimated to be valued at USD$18.5 billion in 2019 and is forecast to grow at 14% p.a. to reach USD$40.6 billion by 2025. The Australian market for plant-based protein is projected to be valued at AUD$3 billion by 2030. Beyond Meat, Impossible Foods and Burcon utilise or manufacture plant-based proteins as the key ingredient of their current alternative meat range. With an increasing number of products becoming available in supermarkets globally, these products are being accessed by consumers as to their impact on climate change, animal-welfare concerns, and potential health benefits they may have.

The market drivers for plant based protein and lupin is extremely robust:

  • Global protein consumption rose 40% between 2000 and 2018. More than 50% of this increase was driven by Asia.
  • The global market is estimated to be valued at US$18.5 billion in 2019 and is forecast to grow at 14% p.a. to reach US$40.6 billion by 2025.
  • A record US$741 million was invested in plant-based protein companies in Q1 2020.
  • Climate change, animal-welfare concerns, and greater interest in wellness are driving consumers to look for alternative sources of protein in their diets.
  • Plant-based protein products have proven to be highly nutritious and are now widely available across supermarkets globally.

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Source: WOA

The global market dynamics for Australian sweet lupin can be seen in the above picture. Increasing investment, strong consumer demand, and partnership agreements among food companies has ensured that the plant-based protein market is extremely scalable. The peer group of WOA have all had incredible company life cycles with their valuations soaring:

  • Beyond Meat – US$8.5 Billion Valuation
  • Impossible Foods – US$4 billion Valuation
  • Burcon NutraScience – US$436 million Valuation
  • Oatly – US$10 billion valuation potential as IPO nears.

Investment Thesis

A very strong business with 3 streams of revenue in sight that is targeting both – B2C and B2B markets, highly innovative products with a low carbon footprint, and robust market dynamics for all their products make WOA optimally positioned to become a food company of the future.

Wide Open Agriculture achieved revenue of $1,752,934 for the half year reporting period. In Q1 and Q2 FY21 growth was sequentially 34% and 29% quarter on quarter. The revenue in Q2 FY21 rose to $989,261. Consistent revenue growth was recorded across the digital, food service and retail sales channels. WOA also turned in a gross profit of $273,363 for the period.

During the reporting period, the Company successfully raised $7.0 million (before costs) from a number of existing shareholders, including a European impact-investment family office, an Australian impact-focused fund, and new institutional and high net-worth investors. An additional AUD$1.5m was also raised via a Share Purchase Plan.

The loss of the Group for the half year after providing for income tax amounted to $3,633,138(2019: loss of $729,621). This included $1,985,630 of non-cash share-based payments, a $1,850,427 increase from the prior period, driven primarily by the increase in WOA’s share price. In addition, WOA has further invested in an experienced team to drive the continued scaling up of operations.

Funds from the Placement and SPP will be applied towards:

  • Lupin protein: design, build and operate a pilot-scale lupin protein manufacturing facility. The lupin protein will be used in Dirty Clean Food (DCF) branded products and/or sold to third party ingredient or consumer product companies.
  • Oat milk: design, build and operate a commercial-scale oat milk facility in Western Australia. The facility will produce oat and other plant-based milks under DCF’s endorsement brand and private label customers.
  • Ethical meat and digital platform: development of marketing strategy and farming system development for large-scale beef, lamb, and poultry operations for online sales and domestic national supermarket chains. Traditional and digital marketing campaigns to grow and consolidate online sales across WA, east coast Australia and south-east Asian markets.
  • General working capital purposes.

As of the 8th of March 2021, WOA has a cash balance of $13.5 million. They have $15 million in current assets as opposed to only $573k in current liabilities. The total assets stand at over $16 million, while total liabilities total at $1.17 million – suggesting that WOA has a very healthy balance sheet. Given the cash burn and the cash in hand, WOA is positioned well to continue its operations for the remaining period in FY2021.

Recommendation

WOA’s business model comes with 3 revenue streams, highly innovative products with low carbon footprint that are gaining momentum, and a very robust market outlook. They are progressing optimally and have milestones to hit in 2021 that have the potential to be market sensitive. With a healthy balance sheet and revenues starting to flow in, WOA is a “Buy” recommendation to long-term investors.

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