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APPHARVEST INC APPH S
May 01, 2022 - 2:05pm EST by
jcoviedo
2022 2023
Price: 4.11 EPS -1.31 -1.18
Shares Out. (in M): 101 P/E 0 0
Market Cap (in $M): 417 P/FCF 0 0
Net Debt (in $M): 20 EBIT -111 -89
TEV (in $M): 437 TEV/EBIT 0 0
Borrow Cost: Tight 15-50% cost

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Description

Thesis  

Appharvest (APPH) is a structurally unprofitable “ESG” “public benefit corporation” that went public through a SPAC with very aggressive projections. APPH’s core business is to build greenhouses (for tomatoes today and other vegetables in the future) in lower cost areas starting with rural Appalachia. APPH’s SPAC financial projections have already been cut in half and current guidance is still too aggressive and likely needs to be cut again. They even did some bizarre  robotics acquisition last year, and then said that because of that, that the earnings per facility is now even higher than originally projected…while cutting guidance for the year. In reality, APPH’s core business is uneconomic (operating costs dramatically higher than wholesale tomato prices) and incinerating cash (free cash burn over the next 2 years roughly equal to the current market cap.) Scaling the business will accomplish nothing other than accelerating the timeline to an inevitable bankruptcy as the unit economics of the company’s facilities don’t work. APPH is in critical need of new capital and will need to raise more capital continuously to fund operating losses. APPH shares are likely to significantly diluted over the next 2-3 years before the company files for bankruptcy.

 

Overview

AppHarvest is aiming to solve the problem of a lack of locally grown and pesticide-freeplant-based foods by growing tomatoes, cucumbers, peppers, and leafy greens in giant greenhouses. AppHarvest integrates “best of breed technology” in lighting, integrated pest management, rainwater collection and other variables to create Controlled Environment Agriculture (CEA) greenhouses. 



On September 29, 2020, Novus Capital Corporation took APPH public via SPAC.  It sounds great and at a high level, makes a lot of sense.  Grow produce closer to the markets and save on transportation costs while giving unemployed Kentuckians jobs where there is plenty of rain/water in a controlled environment.  “The initial Morehead, Kentucky, tomato facility cost over $100mn to construct, uses ~90% less water than open field growth of tomatoes and will produce ~30x more yield in the 60-acre greenhouse relative to 1,500+ acres of open field growth.” Appharvest sells its tomatoes at grocers like Kroger (in the Appalachia region) but does not get a premium price for its products over other tomato brands. The APPH story sounds so nice, but doesn’t make economic sense.


 

Look how impressive those empty greenhouses are before planting!