The future food supply stock pick 🍱

Food Stock Picks

With everyone having to eat 🥘 the global dependence shift continues to take a toll on food prices and supplies.

As food prices rage on, as a result of the current geopolitical factors poised by the global supply chain constraints, we look into companies positioning themselves to contribute to the goal of ending hunger while doing good.

EasyAUD

Australian Agricult Co (AAC)

At a share price of $1.74 per share, Australian Agricult is one of Australia's largest cattle herd owners. The company is amongst the oldest agricultural companies in the jurisdiction, owning up to 7 million hectares of land in Queensland and the Northern territory.

Expanding its property portfolio, Australian Agricult entered into a 10-year lease agreement to use properties covering 12 000 hectares of land. The properties will help capacitate the backgrounding of its premium Wagyu herd. This comes after the company sold its four IT subsidiaries at a value of approximately $2.6 million in 2020.

In the group's first quarter, which ended in November 2021, despite a 22% decline in cash flow, profits from operations increased by $6.5 million from the previous comparative period (PCP) to $30 million. This was mainly driven by the 9% price increase in Wagyu meat sales.

During the period, net profit after tax was $83.2 million, vs a $1.7 million PCP loss. Westholme and Darling Downs are brands that contributed 80% of branded meat sales as of 18 November 2021. By the end of the first half, total meat sales were valued at $102.9 million

Outlook

Tackling the methane-related issues associated with cattle farming, which surfaced as climate change made headlines, Australian Agricult is trialing and testing a feed additive that benefits the livestock while reducing emissions. The group will also establish Wylarah Institute, an advisory group with expertise in climate and nature-related matters. The group is expected to guide investments valued at around $500 000 a year towards sustainability.

Given that Russia's red meat exports accounted for more than 65 countries in 2021, more companies may seek alternative supplies to fill the supply gap, which may position the company for sales growth as sanctions and geopolitical factors come into play.

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EasyZAR

Sea Harvest Group Limited (SHG)

As the global population increases, the demand for food is expected to rise globally, with seafood being among the industries expected to more than double in 2050.

Sea Harvest Group is a South African listed entity that has been repositioning itself in the food supply chain while expanding its portfolio in the ocean economy. Sea Harvest will be acquiring MG Kailis through its Australian subsidiaries. MG Kailis will be acquired for a cash consideration of AU$70 million. The company is based in Western Australia and has more than 50 years of experience in the seafood industry.

Notwithstanding Covid-related volatility, Sea Harvest's revenue increased by 5% to R4.6 billion during the 2021 financial year (FY21); profits from operations increased by 10% to R691 million. The group closed the year with total profits of R434 million or R1.68 per share. Despite the tough abalone market, Sea Harvest saw an increase in sales to R92 million, reducing the segment losses to R64 million. Rewarding investors for the rising earnings, the group further declared a dividend of R0.56 per share, which was paid on 11 April 2022.

Outlook

Given the current demand, the group may see an improvement in earnings in the medium to long term. Expanding its portfolio, Sea Harvest may resort to using earnings to absorb the outstanding shares in its latest acquisitions and beyond as the group broadens its footprint and diversifies its operations to contribute to the value chain of the global food supply.

In terms of creating brand value, Sea Harvest is a co-founder and member of the Responsible Fisheries Alliance (RFA), an alliance focused on the ecosystem approach to fishing that seeks to find a balance between different stakeholders, including society in general, and shareholder value. Together with other seafood providers, Sea Harvest established the GroundFish Forum, a leading whitefish trade association that promotes positive changes in groundfishing activities.

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EasyUSD

Beyond Meat Inc (BYND)

Like the name Beyond Meat Inc, Beyond Meat explores new ways to feed the global community through various initiatives that useless "real meat".

From a share price range above $100 per share, Beyond Meat was amongst the meat-based explorers that came into the spotlight, especially during the pandemic, as companies sought new ways to do things. This at the same time as consumers look for new, “healthier” food to consume. Given the current market uncertainties, Beyond Meat closed at $26 per share on 11 May 2021, which reflected a decline of more than 70% year-to-date from highs above $100 per share.

Despite the $62 million increase in the cost of sales, the company's total revenue for the FY21 increased by $57.9 million or 14%, to $464 million. While at a loss per share, the group continues to increase spending on research and development for new products.

Taking its plant-based meat for a dip into one of the world's largest fast-food restaurants, McDonald's, in late 2021, Beyond Meat announced that it would be partnering with McDonald's to introduce the new McPlant burger. The partnership brings the innovation side of Beyond Meat together with the authentic taste of McDonald's. McDonald's says it will introduce the McPlant to a small number of restaurants first, before launching it into its overall supply chain.

Outlook

Apart from the losses that may continue to occur, fuelled by expansion-related costs, the partnership with McDonald's could elevate the company's market exposure to new highs after the current market sell-off, and rebalance what was triggered by market uncertainties within the plant-based meat market and global economy. For investors with a long-term outlook, the current bear market may present an opportunity to buy the dip as the company grows in the wake of the McDonald's deal.

Beyond Meat is also exploring new ventures that include using insects as a source of nutrition in food. Notably, as the studies of insects contribute to the global food supply chain, this may directly contribute to the company's brand value in contributing to the second United Nations Sustainable Development Goal (SDGs), which includes eating insects as a possible solution to end hunger.

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Informed decision

Markets may continue to be volatile as geopolitical and supply chain factors continue to take a toll on the global economy. With the global population rising, factors involving a cleaner and greener earth may affect the global food supply while creating opportunities for innovation for society during the global dependence shift.

In the current environment, social and corporate governance (ESG) debate on how companies are contributing to the SDGs, companies at the forefront of achieving SDG2, through operations and management that take into consideration both social and investors, may benefit from lower interest rates in from ESG-related funding in a rising yield environment, depending on their ESG scores. This may enable the companies to expand as they explore ways to fill the food demand gap and act as a remedy against rising food prices in the medium to long term.

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Sources – EasyResearch, Beyond Meat Inc, Sea Harvest Group Limited, Australian Agricult Co, ASX. Nasdaq, JSE Sens

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