In search of a new start

By Frank Buhagiar on Monday 9 October 2023

In search of a new start
Image source: In search of a new start
CommentaryFoodTech Investment

Food on the Move: FFF’s weekly roundup of listed FoodTech’s movers & shakers

Week one of Q4 2023 been and gone.  Any signs of a new start for FFF’s listed foodtech space?  New start?  Q3 saw 10 ‘down’ weeks and just three ‘up’ weeks - a ‘down’ week being more share price fallers than risers. Hope is…new quarter, new start, specifically more ‘ups’.   Week ended Friday 6 October 2023? 31 fallers; 14 risers; one non-mover. No new start then…at least not yet.

Not all doom and gloom though.  As reported by Food on the Move over the course of the quarter, listed foodtech has had its fair share of takeovers, strategic partnerships, fund raises and yes liquidations.  Rollercoaster then.  But the foodtechies are functioning like any other sector - adapting to challenges faced, tweaking strategies, doing what’s necessary to make it through to the good times. Good times? When sentiment is on the up, capital is in abundance and investors are open to fresh ideas.  Listed foodtech, as a sector at least, is maturing…

As for those stocks that caught the eye during the week that was, Veganz, a stand out with a share price gain of 24%.  Shares in “the only multi-category provider of vegan food in Europe” still basking in the afterglow of a well-received set of first-half numbers. Capitalised title of Veganz’s press release says it all: “VEGANZ WITH SIGNIFICANTLY IMPROVED EARNINGS IN FIRST HALF OF 2023”.  Sales actually came in lower at “EUR 9.1 million in the first half of 2023 (prior year: EUR 11.5 million). The difference in sales resulted from the Company’s decision to streamline its product range and optimise its customer base with the aim of improving profitability. This led to the delisting of selected products and the withdrawal of entire product categories (including vegetarian frozen pizza), as well as an optimisation of the customer portfolio.”

So, why the share price rise? Partly because sales in the remaining core categories were up 5%. And as founder and CEO Jan Bredack point out: “Our strict focus on profitability, innovation and sustainability continues to be effective in the current challenging macroeconomic market environment.” Veganz, a poster child of the maturing foodtech sector?

Elsewhere, Agrify finally restated “previously issued quarterly filings for the first three quarters of its 2022 fiscal year…The Restatements primarily relate to warrants issued in January 2022 and March 2022 that were reclassified as liabilities rather than as equity…As expected, the Restatements did not impact the Company’s cash position, business operation, or sales. The adjustments in the fair value of the warrants are non-cash items, but impacted earnings results.” Took near-enough six months to reissue the filings.  Still, shares in the cannabis solutions provider up 13% on the news. Worth the wait, it seems.

Same can’t be said for fellow controlled environment agriculture specialist, Urban-gro (UGRO).  Shares off 12% over the course of the week. Most of the damage done on 02 October, the same day UGRO announced: “…that the Company finished the quarter strong by securing contracts spread across four clients in the Controlled Environment Agriculture (‘CEA’) cannabis sector representing an aggregate value of nearly $8 million. Collectively, the contracts include design-build, architecture and design, engineering, and equipment integration services for clients in the northeast, southeast, and western United States. The Company anticipates that the revenue for these projects will be recognized over the next four quarters.”

That’s not all. Two days later on 04 October, the company “…announced that the Company signed multiple contracts representing an aggregate value of more than $4.5 million. The contracts include additional projects for an existing national US-based client within the industrial sector, as well as an awarded project with a new higher education client in the Western United States. The Company anticipates that the collective revenue for these projects will be predominantly recognized over the next two quarters.” As with the previous announcement, shares down on the day.

What’s going on? A look back at UGRO’s recent press releases and it becomes apparent that the above contract wins are no outliers: 26 September 2023, “Awarded Contract for More Than $11 Million of Design-Build Services with Existing Client in the Hospitality & Recreation Sector”; 14 September 2023, “Signs Multiple Contracts with Clients in the Industrial, Aerospace, Laboratories, and Hospitality Sectors for an Aggregate Value of More than $2 Million”; 13 September 2023, “Signs Multiple Contracts with Clients in the Cannabis Sector for an Aggregate Value of More Than $3 Million”. Could go on, but point made me thinks.

So, why the share price fall? Questions perhaps over UGRO’s capacity to fulfil all these orders without the need for a fundraise? Or could it be down to a case of too much of a good thing - Mr Market now desensitised to contract wins? After all, as at 30 June, the company reported “unrealized revenue represented by signed construction design-build, equipment systems, and service orders…was approximately $79 million”. UGRO having a Jerry Maguire moment? “SHOW ME THE MONEY”? In other words, more evidence required that UGRO is a business that converts revenues into cash flows, a business that, in tandem with the food/agtech sector as a whole, is maturing?