Editing Agronomics Limited

In a world where the consequences of climate change are becoming increasingly evident, Agronomics Limited stands out as a pioneer, leading the way towards a more sustainable future. The founders' vision, rooted in a deep desire to combat climate change through innovative food production, positions the company as not just a profitable investment but also a crucial player in the global movement towards a greener, more sustainable future. Investing in Agronomics Limited is not just about financial returns; it's about being part of a solution that our planet desperately needs.

Here, the total addressable market (TAM) is defined as the global agricultural market, and based on a number of assumptions, it is estimated that the size of the market as of today (14th September 2023), in terms of revenue, is $2.7 trillion.

Here, the serviceable available market (SAM) is defined as the global cultured agricultural market, and based on a number of assumptions, it is estimated that the size of the market as of today (14th September 2023) is $100 million in terms of revenue.

Here, the serviceable obtainable market (SOM) is defined as the US cultured agricultural market, and based on a number of assumptions, it is estimated that the size of the market as of today (14th September 2023), in terms of revenue, is $30 million.

=== Most recent ===

=== Interims ===

=== Full-year results ===

==== What are the assumptions used to estimate the financial forecasts?====

|Here, the total addressable market (TAM) is defined as the global agricultural market, and based on a number of assumptions<ref group="Note" name="Note01" />, it is estimated that the size of the market as of today (14th September 2023), in terms of revenue, is $2.7 trillion.

|What is the estimated company lifespan?

|Currently, Agronomics employs around five people, making the company a small organisation (less than 10,000 employees). That said, given the company's mission, we expect the company to grow to a large organisation, and research shows that the average lifespan of a large corporation is around 50 years.<ref>Stadler, Enduring Success, 3–5.</ref>

|What's the estimated annual growth rate of the total addressable market over the lifecycle of the company?

|Research shows that the growth rate of the global agricultural market (i.e. the total addressable market) is similar to the growth rate of global gross domestic product, which has averaged (medium) around 3% per year in the last 20 years (2001 to 2022)<ref>https://www.macrotrends.net/countries/WLD/world/gdp-growth-rate</ref>.

|The Stockhub users estimate that especially given the leadership of the company, the peak market share of Agronomics is around 0.10%, and, therefore, suggests using the share amount here. As of 31st December 2022, Agronomics's current share of the market is estimated at around zero%.

|-

|Research suggests that the revenue pattern of companies is similar to the pattern produced by the Gaussian distribution function  (i.e. the revenue distribution is bell shaped)<ref>http://escml.umd.edu/Papers/ObsCPMT.pdf</ref>, so the Stockhub users suggest using that function here.

|What's the estimated standard deviation of company revenue?

| 5 years

|Another way of asking this question is this way: within how many years either side of the mean does 68% of revenue occur? Based on Agronomics's current revenue amount (i.e. £12.68 million) and Agronomics's estimated lifespan (i.e. 50 years) and Agronomics's estimated current stage of its lifecycle (i.e. introduction stage), the Stockhub users suggest using five years (i.e. 68% of all sales happen within five years either side of the mean year), so that's what's used here.

| colspan="3" |'''<div style="text-align: center;">Growth stages</div>'''

|How many main stages of growth is the company expected to go through?

|Research suggests that a company typically goes through four distinct stages of cash flow growth.<ref>Levie J, Lichtenstein BB (2010) A terminal assessment of stages theory: Introducing a dynamic approach to entrepreneurship. Entrepreneurship: Theory & Practice 34(2): 317–350. <nowiki>https://doi.org/10.1111/j.1540-6520.2010.00377.x</nowiki></ref> Research also shows that incorporating those stages into the discounted cash flow model improves the quality of the model and, ultimately, the quality of the value estimation.<ref>Stef Hinfelaar et al.:, 2019.</ref>

In addition, research shows that a key way to determine the stage which a company is in is by examining the cash flow patterns of the company.<ref>Dickinson, 2010.</ref> A summary of the economic links to cash flow patterns can be found in the appendix of this report. The Stockhub users estimate that with Agronomics's operating cash flows negative (-), investing cash flows negative (-) and its financing cash flows positive (+), the company is in the first stage of growth (i.e. the 'introduction' stage), and, therefore, it has a total of four main stages of growth. Note, to account for one-off events, the three-year average (median) amount was used to calculate the cash flows.

|What proportion of the company lifecycle is represented by growth stage 1?

|Research suggests 30%.<ref name=":6">http://escml.umd.edu/Papers/ObsCPMT.pdf</ref>

|What proportion of the company lifecycle is represented by growth stage 2?

| What proportion of the company lifecycle is represented by growth stage 3?

|What proportion of the company lifecycle is represented by growth stage 4?

|Research suggests 40%.<ref name=":6" />

| colspan="3" |'''<div style="text-align: center;">Growth stage 1</div>'''

|Cost of goods sold as a proportion of revenue (%)

|12.92%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7">http://people.stern.nyu.edu/adamodar/pdfiles/papers/younggrowth.pdf</ref>. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Operating expenses as a proportion of revenue (%)

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Fixed Capital Investment (FCInv) as a proportion of revenue (%)

|8.59%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Working Capital Investment (WCInv) as a proportion of revenue (%)

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Interest expense as a proportion of revenue (%)

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

| colspan="3" |'''<div style="text-align: center;">Growth stage 2</div>'''

|Cost of goods sold as a proportion of revenue (%)  

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|-

|Operating expenses as a proportion of revenue (%)

|41.11%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|-

|Tax rate (%)

|15.23%

|Depreciation and amortisation rate (%)

|79.52%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Fixed Capital Investment (FCInv) as a proportion of revenue (%)

|1.13%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Working Capital Investment (WCInv) as a proportion of revenue (%)

|52.01%  

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Net borrowing as a proportion of revenue (%)

|0.27%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Interest expense as a proportion of revenue (%)

|0.41%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

| colspan="3" |'''<div style="text-align: center;">Growth stage 3</div>'''

|-

|Cost of goods sold as a proportion of revenue (%)

|0.00%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|-

|Operating expenses as a proportion of revenue (%)

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Tax rate (%)  

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Depreciation and amortisation rate (%)  

|18.93%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|-

|Fixed Capital Investment (FCInv) as a proportion of revenue (%)

|2.21%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Working Capital Investment (WCInv) as a proportion of revenue (%)

|(1.46)%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Net borrowing as a proportion of revenue (%)

|(1.10)%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Interest expense as a proportion of revenue (%)

|0.31%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

| colspan="3" |'''<div style="text-align: center;">Growth stage 4</div>'''

|Cost of goods sold as a proportion of revenue (%)

|36.13%

|Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.  

|Operating expenses as a proportion of revenue (%)

|174.39%

|Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Tax rate (%)

|(1.94)%

|Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Depreciation and amortisation rate (%)

|47.29%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Fixed Capital Investment (FCInv) as a proportion of revenue (%)

| 6.25%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Working Capital Investment (WCInv) as a proportion of revenue (%)

| 2.13%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Net borrowing as a proportion of revenue (%)

|0%

|Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4)<ref name=":7" />. Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

|Interest expense as a proportion of revenue (%)

== Risks ==

As with any investment, investing in Agronomics carries a level of risk. Overall, based on the Agronomics' adjusted beta (i.e. 1.40)<ref name=":4">Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, it’s best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref>, the degree of risk associated with an investment in Agronomics is 'medium'.

 

Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report.

 

The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to ccc.

 

=== Credit risk ===

Credit risk is the risk of loss associated with the counterparty’s inability to fulfil its obligations. The Company’s credit risk is primarily attributable to receivables, cash balances, and cash deposits, with the maximum exposure being the reported balance in the statement of financial position. The Company has a nominal level of debtors and as such the Company believes that the credit risk to these is minimal. The Company holds available cash and cash deposits with licensed banks and financial institutions. The Company considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk. Cash balances are available on demand, with cash deposits having varying maturities up to 6 months.

 

=== Market price risk ===

 

 

=== Liquidity risk ===

The Company is exposed to liquidity risk to the extent that it holds investments that it may not be able to sell quickly at close to fair value.

 

The risk is managed by the Company by means of cash flow planning to ensure that future cash requirements are anticipated and, where financial instruments have to be sold to meet these requirements, the process is carried out in a controlled manner intended to minimise the liquidity risk involved.

 

A significant share of the Company’s assets is comprised of cash held at banks. As a result, the Company is subject to risk due to fluctuations in the prevailing level of market interest rates. However, income earned from bank interest is not considered material to the Company’s performance or financial position.

 

The Company holds investments in convertible loan notes (“CLN”), which attract interest income. The rates of interest are fixed for each CLN investment held, which results in a reduced interest rate risk.

 

'''Fair values of financial assets and liabilities'''

 

At 30 June 2022, the carrying amounts of cash resources, trade and other receivables, and trade and other payables approximate fair value due to their short-term maturities.

 

 

The Company is exposed to foreign currency risk on fluctuations related to financial assets and liabilities held directly itself and indirectly via its subsidiary that are denominated in a number of currencies. The Investment in Subsidiary is held in Sterling. The analysis below reflects the underlying currency exposure in the Subsidiary’s portfolio.

 

====What's the expected return of an investment in the company?====

The Stockhub users estimate that the expected return of an investment in the company over the next five years is ccc%, which equates to an annual return of ccc%. In other words, an £1,000 investment in the company is expected to return £ccc in five years time. The assumptions used to estimate the return figure can be found in the table below.

 

 

{| class="wikitable"

|+ Key inputs

!Description

!Value

!Commentary

| Which valuation model do you want to use?

|Discounted cash flow

|Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach<ref name=":5">Demirakos et al., 2010; Gleason et al., 2013</ref>, so that's the approach that he Stockhub users suggest to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report).

 

 

 

 

 

|Agronomics peak market share

 

 

 

 

 

 

 

|One year from now is 12th September 2024, and the most recent book value date is 31st December 2022. For simplicity, we based the estimate on the CAGR of Agronomics over the last five years, which is 46.37%. The most recent value is $248,178,354 (as at 31st December 2022).

 

#The compound annual growth rate of the Agronomics book value (the default figure is ccc%);

|42%

|185%

|327%