BIOX: Revenue growth accelerates on increased demand for micro-bead fertilizer due to management’s commercial pricing strategy as the company awaits regulatory approvals from China for HB4 soybeans and from Brazil for HB4 wheat

By Steven Ralston, CFA

NASDAQ:BIOX

READ THE FULL BIOX RESEARCH REPORT

Bioceres Crop Solutions (NASDAQ:BIOX) is an integrated, global provider of crop productivity solutions and is on the verge of globally commercializing HB4 drought-tolerant technology with two highly significant Go-To-Market opportunities: HB4 soybeans and HB4 wheat. The company is building up seed inventories in preparation for fast-tracking commercialization for when importation approvals are granted by China and Brazil.

In the meantime, management’s commercial strategy is bearing fruit, particularly in the effort to utilize the full capacity at its 50,000-tonne micro-bead fertilizer plant. In the third fiscal quarter ending March 31, 2021, Bioceres Crop Solutions reported a 34.6% YOY increase in total comparable revenues to approximately $35.0 million. Though traditionally a seasonally weak quarter, management’s new pricing structure (coupled with strong commodity prices), dramatically stimulated sales of the company’s micro-bead fertilizer.

In addition, Bioceres Crop Solutions entered into strategic partnerships with Moolec Science and Havanna SA to participate in the hybrid crop area (meat analog food-proteins) and to develop and roll out a line of HB4 wheat-derived products, respectively. Also, the company is pursuing an effort to be verified as an issuer of Sustainability-Linked Bonds (SLBs) by commissioning Vigeo Eiris to produce an independent opinion on the environmental impact of HB4 soy and HB4 wheat in terms of cumulative CO2-equivalent savings.

Third Quarter of Fiscal 2021 – Operational Highlights

Flagship HB4 Programs

HB4 wheat (seed inventory continues to build):

◦ For upcoming planting season, over 60,000 hectares have already contracted for HB4 wheat, up from 7,000 hectares planted last year.

◦ The number of HB4 wheat growers increased 700% YOY from 25 to 200.

▪ Last season was characterized by severe drought conditions in certain growing regions. HB4 wheat out-yielded commercial varieties on average by 13.5%. In low-end productivity environments, HB4 wheat increased yields by an average of 42%. These drought conditions enabled Bioceres Crop Solutions to showcase HB4 technology under real world conditions.

HB4 soy: Approximately 23,000 hectares of drought-tolerant HB4 soybeans were planted (up from 3,000 hectares last year) with the number of growers increasing from 15 to 148. As of mid-May, roughly 60% of the crop had been harvested.

• The growing seed inventories for HB4 wheat and HB4 soy lays the foundation for Bioceres to meaningfully launch both crops once Brazil and China approve HB4 wheat and soy, respectively.

• Approximately half of total hectares planted by HB4 growers have adopted the company’s beta version of the Generation HB4 digital platform, which automates commercial interaction, credit scoring, contract execution and input logistics. Through a comprehensive dashboard app, growers can sign up by geo-positioning their fields and then manage orders, invoicing, billing, traceability etc.

Strategic Partnerships

In mid-March, 2021, Bioceres Crop Solutions contributed its GLA rights to Moolec Science Ltd in return for a 6% equity interest (2,919,715 ordinary shares) in the company. Moolec Science is an Ag-Food tech company that is in the process of developing hybrid crops that combine plant-based and cell-based technologies in order to provide meat analog food-proteins. In an effort to commercialize cultured meat, Moolec has produced rennin (bovine enzyme chymosin) in safflower seeds and currently is working on producing bovine (cow) and porcine (pig) functional proteins in protein-rich crops, initially in soybean and peas, but also in wheat and oats.

In early May 2021, Bioceres Crop Solutions entered into an agreement with Havanna SA, a manufacturer of premium food products that are sold in retail stores and supermarkets as well as through its own system of over 300 franchise coffee shops. Havanna will develop and roll out a line of HB4 wheat-derived products with farm-to-fork traceability. This foray into the direct-to-consumer channel should not only promote consumer engagement with HB4 wheat, but also valid the adoption of HB4 wheat as a high value ingredient by other food processors.

ESG (Environmental, Social and Governance) Assessment

Bioceres Crop Solutions commissioned Vigeo Eiris, the ESG Solutions Group of the well-known Moody’s rating and research company, to produce an independent Second Party Opinion (SPO) on the social and environmental impact the roll out of HB4 soy and HB4 wheat in terms of cumulative CO2-equivalent savings. Management’s goal for the roll out of HB4 technology is to achieve over 156,000 tons in cumulative CO2-equivalent savings by 2025.

Management desires to adhere to Voluntary Process Guidelines of the ICMA (International Capital market Association), which recommend achieving certain Sustainability-Linked Bond Principles (SLBP) in order to give guidance to market participants that allocate capital to sustainability-linked financial products. SLBP include realizing material, pre-determined and verifiable ESG sustainability objectives through quantitative Key Performance Indicators (KPIs). Management believes its goal in terms of cumulative CO2-equivalent savings provides a clear definition of a KPI, along with its reference to the Sustainable Development Goals (SDGs) of the United Nations (namely SDG 2 and 13), sets the foundation to qualify as an issuer of Sustainability-Linked Bonds (SLBs) .

Bioceres Crop Solutions Listing Transferred to NASDAQ

On April 27, 2021, the listing of Bioceres Crop Solutions transferred from the NYSE American to Nasdaq Global Select Market (NASDAQ), which is expected to enhance the company’s visibility as an Ag-tech company. The symbol remains BIOX.

Third Quarter of Fiscal 2021 Financial Results

On May 13, 2021, Bioceres Crop Solutions reported financial results for the third fiscal quarter ending March 31, 2021. Though usually a seasonally weak quarter, management’s new fertilizer pricing structure, coupled with strong commodity prices making micro-bead fertilizer more competitive, dramatically stimulated sales of micro-bead fertilizer in the third quarter, driving a 34.6% YOY increase in total comparable revenues to approximately $35.0 million from $26.0 million in the third quarter of fiscal 2020.

Comparable revenues of the Crop Nutrition segment increased 191% to approximately $15.1 million versus $5.2 million in the comparable quarter last year. The catalyst was micro-beaded fertilizer, which management has been priming up through a commercial pricing strategy designed to utilize more of the installed operational capacity of 50,000 tonnes. The plant’s utilization rate on a 12-month trailing basis was 34% (17,000 tonnes) compared to 30% (15,000 tonnes) during fiscal 2020 and 20% in fiscal 2019. The price increases in commodity fertilizers (the primary competition to the company’s micro-beaded fertilizer) further incentivized farmers to transition and adopt the advanced technology of micro-beaded fertilizer.

In the Crop Protection segment, comparable revenues declined 3% due to dry weather in key markets that resulted in less pest pressure, reducing the demand for insecticides, fungicides and adjuvants. In the Seed and integrated products segment, comparable revenues declined 9%, primarily due to a tough comparison to last year’s quarter which included 95% growth from the company’s French subsidiary.

The comparable gross profit margin improved 362 basis points to 50.0% versus 46.4% in the comparable quarter last year.

Selling, general and administrative (SG&A) expenses increased 17.5% to $10.2 million, primarily due to $4.04 million in additional outsourced professional services, slightly offset by an $847,800 decline in travel expenses.

Adjusted EBITDA increased 163% YOY to $6.9 million in the third fiscal quarter versus $2.6.1 million in the third quarter of the prior fiscal year, primarily driven by the upturn in the micro-beaded fertilizer business.

For the third fiscal quarter, Bioceres Crop Solutions reported a net loss of $1.180 million (or $0.0305 per diluted share) versus $3.121 million (or $0.0857 per diluted share) in the third quarter last year. Weighted shares outstanding sequentially decreased to approximately 38.76 million shares from 39.04 million shares in the second fiscal quarter this year. During the quarter, the company repurchased 403,036 shares of BIOX for $2,678,624.

As of March 31, 2021, Bioceres Crop Solutions has a strong liquidity position with cash, cash equivalents and other short-term investments totaling approximately $37.2 million, increasing sequentially from $20.7 million as of December 31, 2020.

Recent Financing

On March 5, 2021, Rizobacter Argentina S.A. (Bioceres 80%-owned subsidiary) completed a $26.0 million public corporate bonds offering in the Argentine capital market. These Series V bonds were issued in two classes: $5.2 million of 1-year 0.98% Class A bonds due March 5, 2022 and with a nominal annual rate of 0.98% and $20.8 million 3-year 5.5% Class B bonds due March 5, 2024. The capital will be used to support working capital needs, extend the maturities of the company’s debt portfolio and reduce the company’s financing costs.

Upcoming Corporate Presentations

Management continues to build awareness by attending Analyst Conferences. Upcoming conferences include:

• the Roth London Investor Conference on June 21, 2021 – June 23, 2021

• the Jefferies 2021 Industrials Conference on August 3, 2021 – August 4, 2021

Bioceres Crop Solutions is on the verge of globally commercializing HB4 soybeans and HB4 wheat. Management looks forward to the over $100 million market opportunities the will spring from China’s regulatory approval for the importation of HB4 soybeans and Brazil’s regulatory approval for the importation of HB4 wheat. The company continues to build up inventories of HB4 soybeans and HB4 wheat in preparation for fast-tracking commercialization when these regulatory approvals are granted. The impact of commercializing HB4 technology will be highly significant for Bioceres Crop Solutions.

Near-term Drivers for Growth

There are several potential near-term catalysts that would drive revenue growth, EBITDA and earnings of Bioceres Crop Solutions. Regulatory approval for importation of HB4 soybeans into China and/or the regulatory approval for the importation of HB4 wheat into Brazil would drive a dramatic scale-up of production of HB4 soybeans and/or HB4 wheat in Southern Cone of South America. The increase in demand could potentially over double the company’s top line. To further facilitate acceptance of HB4, Bioceres launched the HB4 program to increase penetration into the Argentinean, other Southern Cone seed markets and the U.S.

HB4 seed trait technology increases a plant’s tolerance to abiotic stress, and as a result, assists in increasing crop yields by 12% to 19%. HB4 soybeans are tolerant to drought, and there is a variety with stacked tolerance to both drought and soil salinity.

Bioceres Crop Solutions has achieved several highly significant bio-agricultural regulatory milestones.

• October 2015 – Argentina approved drought tolerant HB4 soybeans for consumption (food & feed) and production. The regulatory approval is contingent upon trade approval by China.

• October 2018 – Argentina approved drought and herbicide tolerant HB4 soybeans for consumption and production. The regulatory approval is contingent upon trade approval by China.

• May 2019 – Brazil approved drought tolerant HB4 soybeans and drought and herbicide tolerant HB4 soybeans for commercialization (planting and harvesting).

• August 2019 – the USDA approved drought tolerant HB4 soybeans for production in the U.S market. The FDA had previously approved the HB4 trait for consumption in 2017.

• November 2019 – Paraguay approved drought and herbicide tolerant HB4 soybeans for consumption and production.

• October 2020 – Argentina approved the production and marketing of drought-tolerant and salinity-tolerant HB4 wheat. The regulatory approval is contingent upon trade approval by Brazil.

• June 2021 – Canada approved the production of HB4 drought and herbicide tolerant soybeans

Valuation

For Bioceres Crop Solutions, a reasonable methodology is a discounted cash flow (DCF) model that estimates future cash flows and discounts them by using the cost of capital in order to attain a net present value. Our DCF model is arranged by expected revenue streams from three business lines, namely the company’s revenue generating businesses (primarily Rizobacter), the expected revenues from HB4 soybeans and the expected revenues from HB4 wheat. The model (which applies a 15% discount rate and a terminal P/S ratio of 0.67, which is the median P/S ratio of a large agricultural products company) indicates a share price target of $18.25 on a fully diluted basis.

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