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A Quick Take On African Agriculture
African Agriculture (AAGR) has filed to raise an undisclosed amount in an IPO of its common stock, according to an S-1 registration statement.
The firm operates an alfalfa farm in Senegal and has plans for large-scale tree farming in Niger to sell voluntary carbon offsets.
When we learn more about the IPO, I’ll provide a final opinion.
Company
New York, NY-based African Agriculture was founded to develop agricultural products for export and for carbon offset sales.
Management is headed by Chairman and CEO Alan Kessler, who was previously in investment banking at Morgan Stanley and investment research at Goldman Sachs and has extensive emerging market investment experience.
The company’s primary offerings include:
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Alfalfa – Senegal
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Tree planting in Niger – planned
African Agriculture has booked fair market value investment of $3.3 million as of December 31, 2021, from investors, including Global Commodities & Investments Ltd and Gora Seek.
The firm seeks to sell alfalfa to owners and suppliers of cattle for nutritional and feed purposes.
AAGR focuses on markets in Senegal and in surrounding regions in Africa, ECOWAS regions and the Middle East.
African Agriculture’s Market & Competition
According to a 2021 market research report by Fortune Business Insights, the global market for alfalfa was an estimated $19.9 billion in 2020 and is forecast to reach $35.2 billion by 2028.
This represents a forecast CAGR of 7.2% from 2021 to 2028.
The main drivers for this expected growth are growing cattle production and the use of more nutritionally balanced feed products.
Also, the Asia Pacific region is the leading region in the livestock category and production has been growing there due to an increase in human living standards, which has increased demand for more expensive meat products.
Major competitive or other industry participants include:
‘Anderson Hay, ACX Global, Bailey Farms, Aldahra, Grupo Oses, Gruppo Carli, Border valley Trading, Barr-Ag, Alfa tec, Standlee Hay, Sacate Pellet Mills, Oxbow Animal Health, M&C Hay, Accomazzo, Hiushan Dairy, Qiushi Grass Industry, Beijing HDR trading, Modern Grasslands and Inner Mongolia Dachen Agriculture.’ (Source – SEC)
African Agriculture Financial Performance
The company’s recent financial results can be summarized as follows:
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No topline revenue
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Increasing operating losses
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Growing cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
|
|
Period |
Total Revenue |
|
2021 |
$ – |
|
2020 |
$ – |
|
Operating Profit (Loss) |
|
|
Period |
Operating Profit (Loss) |
|
2021 |
$ (3,864,176) |
|
2020 |
$ (1,612,933) |
|
Net Income (Loss) |
|
|
Period |
Net Income (Loss) |
|
2021 |
$ (4,293,335) |
|
2020 |
$ (2,779,804) |
|
Cash Flow From Operations |
|
|
Period |
Cash Flow From Operations |
|
2021 |
$ (3,539,647) |
|
2020 |
$ (921,513) |
(Source – SEC)
As of December 31, 2021, African Agriculture had $19,093 in cash and $36.1 million in total liabilities.
Free cash flow during the twelve months ended December 31, 2021, was negative ($4.4 million).
African Agriculture IPO Details
African Agriculture intends to raise an undisclosed amount in gross proceeds from an IPO of its common stock.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
The principal purposes of this offering are to fund our program of incremental planting expansion of 10,000 hectares at the LFT Farm, which we expect to occur in 2022 with approximately 50 hectares seeded on a daily basis.
We currently intend to use approximately $9,500,000 of the net proceeds from this offering, together with our existing cash and cash equivalents, to prepare the pivots, irrigation, all farming operations, machinery and infrastructure necessary to complete such expansion, which based on average yield expectations would produce approximately 250,000 tons per year.
We currently intend to use approximately $18,000,000 of the net proceeds from this offering for phytosanitary products, including Soil treatment, Potassium, Gypsum, Seeds, Fertilizer, payment of salaries and personnel for two years and D&O, Crop and Workers Compensation insurance for two years.
Additionally, we currently intend to use approximately $650,000 of the net proceeds of the offering to conduct feasibility studies for potential new businesses including approximately $50,000 for aquaculture, $300,000 for carbon credit and reforestation programs and $300,000 for biofuel from algae.
We intend to use the balance of proceeds for ongoing operating expenses and other general corporate uses.
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management believes that any negative outcome from a legal claim or proceeding would not have a material adverse effect on the company’s financial condition or operations.
The sole listed bookrunner of the IPO is Spartan Capital Securities.
Commentary About African Agriculture’s IPO
AAGR is seeking U.S. public capital market investment to fund its alfalfa growing plans and for its carbon offset business segment.
The company’s financials have produced zero topline revenue, growing operating losses and increasing cash used in operations.
Free cash flow for the twelve months ended December 31, 2021, was negative ($4.4 million).
The firm currently plans to pay no dividends on its shares and anticipates that it will retain any future earnings to reinvest back into the business.
The market opportunity for selling alfalfa is large and expected to grow in the coming years. The global voluntary carbon offset market is in considerable flux but is also expected to grow materially in the years ahead.
Spartan Capital Securities is the sole underwriter, and IPOs led by the firm over the last 12-month period have generated an average return of negative (77.5%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
The primary risk to the company’s outlook in the short term is the sharply rising cost of fertilizer due to the Ukraine war.
When we learn more about the IPO from management, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
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