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A quick look at African agriculture
African Agriculture (AAGR) has filed to raise an undisclosed amount in an initial public offering of its common stock, according to an S-1 registration statement.
The company operates an alfalfa farm in Senegal and is planning a large-scale tree nursery in Niger to sell voluntary CO2 compensation.
As we learn more about the IPO, I’ll provide a final opinion.
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Based in New York, NY, African Agriculture was formed to develop agricultural products for export and sale of carbon offsets.
Management is led by Chairman and CEO Alan Kessler, who previously worked in investment banking at Morgan Stanley and investment research at Goldman Sachs and has extensive investment experience in emerging markets.
The company’s main offerings include:
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Alfalfa – Senegal
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Tree planting in Niger – planned
African Agriculture has booked a fair market value investment of US$3.3 million as of December 31, 2021 from investors including Global Commodities & Investments Ltd and Gora Seek.
The Company seeks to sell alfalfa to owners and suppliers of cattle for human consumption and forage.
AAGR focuses on markets in Senegal and surrounding regions in Africa, ECOWAS regions and the Middle East.
Market and competition in African agriculture
According to a 2021 market research report by Fortune Business Insights, the global alfalfa market was estimated at US$19.9 billion in 2020 and is projected to reach US$35.2 billion by 2028.
This equates to a projected CAGR of 7.2% from 2021 to 2028.
The main drivers for this expected growth are increasing cattle production and the use of more balanced feeds.
In addition, Asia-Pacific is the leading region in the livestock category, and production there has grown due to an increase in human living standards, leading to increased demand for more expensive meat products.
Key contestants 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, HDR trade in Beijing, modern grasslands and Dachen agriculture of Inner Mongolia.’ (Source – SEC)
Financial performance of African agriculture
The company’s recent financial results can be summarized as follows:
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No heat intake
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Increasing operating losses
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Growing cash used in operations
The following are relevant financial results arising from the company’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) |
|
(Glossary of terms) |
(Source – SEC)
As of December 31, 2021, African Agriculture had $19,093 in cash and $36.1 million in total debt.
Free cash flow for the twelve months ended December 31, 2021 was negative ($4.4 million).
African Agriculture IPO Details
African Agriculture intends to raise undisclosed gross proceeds from an initial public offering of its common stock.
No existing shareholder has expressed an interest in buying shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
The primary purpose of this offering is to fund our program to gradually expand the planting of 10,000 hectares at LFT Farm, which we expect to be implemented in 2022 with approximately 50 hectares seeded daily.
We currently intend to use approximately $9,500,000 of the net proceeds of this offering, along with our existing cash and cash equivalents, to prepare the pivots, irrigation, all farm operations, machinery and infrastructure necessary to complete such an expansion, based on average yield expectations would produce around 250,000 tons per year.
We currently intend to use approximately $18,000,000 of the net proceeds from this offering for crop protection products, including soil treatment, potassium, gypsum, seeds, fertilizers, two years of salary and staff payments, and two years of D&O, crop and workers’ compensation insurance.
In addition, we currently intend to use approximately $650,000 of the net proceeds from the Offering to conduct feasibility studies for potential new businesses, including approximately $50,000 for aquaculture, $300,000 for carbon credits and reforestation programs, and $300,000 for Biofuel from algae.
We intend to use the balance for ongoing operating expenses and other general corporate purposes.
(Source – SEC)
Management’s presentation of the company’s roadshow is not available.
With respect to pending litigation, management believes that an adverse outcome of any legal claim or proceeding would not have a material adverse effect on the Company’s financial condition or operations.
The sole public bookrunner for the IPO is Spartan Capital Securities.
Commentary on the IPO of African agriculture
AAGR is seeking investments in the US public capital market to fund its alfalfa cultivation plans and carbon offset business segment.
The company’s financials have resulted in zero sales, growing operating losses and increasing cash usage.
Free cash flow for the twelve months ended December 31, 2021 was negative ($4.4 million).
The company currently plans not to pay dividends on its shares and anticipates that it will retain future profits to reinvest in the company.
The market opportunities for the sale of alfalfa are large and are expected to grow in the coming years. The global market for voluntary carbon offsetting is undergoing significant change, but is expected to continue to grow significantly in the coming years.
Spartan Capital Securities is the sole underwriter and IPOs led by the firm over the past 12 months have generated an average negative yield (77.5%) since its IPO. This is a lowest performance for any major underwriter over the period.
The main risk to the company’s near-term prospects is the sharp increase in fertilizer costs due to the Ukraine war.
When we hear more about the IPO from management, I’ll make a final statement.
Estimated IPO Price Date: To be announced.
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