AppHarvest planning to go public (NOVS)
AppHarvest announced on Tuesday that is going public via a SPAC. AppHarvest is an indoor farming start-up, an ag-tech company. AppHarvest operates a 60-acre facility in Kentucky, and its first harvest of tomatoes is anticipated in early 2021. The company will receive $475M in the financing, with $375M coming through a PIPE. The transaction values the company at roughly $800M in proforma equity value and $550M in enterprise value. A month ago, the company raised $28M through a Series C round of financing, bringing the total raised to $150M.
AppHarvest claims its indoor farming uses 90% less water than traditional agriculture without chemicals. It also purports to have 30x more yield per acre of fruits and vegetables. The facility is expected to grow 45M pounds of fresh produce each year. A typical acre would produce 37,500 pounds of tomatoes conventionally, which implies AppHarvest would have yields 20x higher. The labor differential is at a minimum of 4.5x greater in Kentucky than Mexico, where most tomatoes consumed in the US are grown. Yet, the economics of greenhouse-grown produce works in the Netherlands, the second-largest agricultural exporter. The country exports nearly €100B of agricultural products, including roughly €6B of greenhouse-grown vegetables.
Investors include David Lee, the CFO of Impossible Foods, Martha Stewart and Jeffrey Ubben. The transaction is expected to close late in Q4 or early 2021. The company’s future projections are shown below. The valuation of 2.2x projected 2024 sales of $246M and 11.2x 2024 projected adj. EBITDA appears quite expensive for a company that has not had a harvest yet. What the company does offer is a lot of growth, which happens to be what investors have been paying up for in IPOs. The development pipeline includes an additional 480M acres. What investors need to keep in mind is an ag-tech company is still very reliant on commodity prices and non-tech inputs.
GO positioned for worsening economic conditions
During the pandemic, many Americans learned how to cook a greater variety of meals. Cooking at home also reinforced how much they save by preparing meals at home. So it is no surprise that the #1 action consumers say they will take if economic conditions worsen cooking more at home, as seen in the following chart. Without another government stimulus, we will likely see economic conditions worsen for more families. Grocery Outlet is a bargain grocer that benefits from consumers looking to stretch their dollars further for food.
2020 will not be known for its West Coast wine vintages (STZ)
US winemakers began the year in an excess supply situation. The fires still ravaging the West coast has taken care of that with estimates of a 15% reduction in harvest YOY. The fires have so far burned 3.7M acres out west with a lot of destruction in some of the most prized wine growing regions of Napa and Sonoma. The fires also came at the time when grapes are the most vulnerable between veraison and harvest. One of the issues is smoke taint can’t necessarily be detected by taste or smell until they have been fermented, sometimes taking years. In other words, 2020 West Coast wines are not going to be given the benefit of the doubt, and bulk wine buyers will likely look elsewhere. The California Association of Winegrape Growers has been distressed by reports of canceled contracts for grapes. The marketing spin has already kicked in with the industry now referring to smoke taint as smoke-impacted or smoke-affected. The largest wine companies on the West Coast, Constellation Brands, EJ Gallo, and Treasury Wine, are reportedly moving forward with their vintages. A spokesperson for Gallo said the company is “optimistic” and “moving full steam ahead.” The large wineries have insurance and other options that single-vineyard wines do not. In California, about two-thirds of the acreage is insured, but many policies only cover grapes ruined by smoke and not just tainted.