|Shares Out. (in M):||172||P/E||n/a||n/a|
|Market Cap (in $M):||365||P/FCF||n/a||n/a|
|Net Debt (in $M):||-3||EBIT||-8||-5|
Bio-Extraction Inc. (BXI CN)
Note all figures are in Canadian dollars (1.02 to the USD)
COMPANY DESCRIPTION AND INVESTMENT THESIS
Traditionally canola seeds have been processed to produce canola oil and meal. The naturally occurring protein in canola seeds has traditionally been destroyed by the high temperature process used to extract oil (100 - 140 degrees Celsius). BXI has a patented solvent and process that works at lower temperatures (60 degrees Celsius) so that they can extract the same amount of oil as the traditional process but also extract protein which was previously destroyed (the BioExx process produces less meal than the traditional process but meal is low value while the protein is very high value).
The economics of being able to produce a high quality protein from canola seeds when previously it wasn't possible are immense as per the table below:
|Economics Per Metric ton of Canola Seeds|
|Price per||Traditional process||Protein Concentrates||Protein Super-||Protein Isolates|
Management and employees are heavily compensated with stock options (accounted for in my diluted share price calculation) - so basically they become rich after years of working hard on mediocre pay only if the company's product succeeds.
The valuation methodology involves modeling out the cash flows of the Saskatoon plant that is expected to start producing proteins in April 2010 and assume that other plants they build will have similar cost structures on a per ton basis. These cash flows less corporate expenses will give us the free cash flow generation for this business. I assume a 30 year life for each plant and no terminal value for the business. For product mix I assume management is able to realize their goal of producing oil, meal and protein isolates as per their six month ramp up schedule.
Before we get too deep into valuation let's do some basic math:
The problem with valuation is that it is dependent on how many individual plants they set up. Currently management's plan is to build 760,000 metric tons of capacity by 2014 with one new plant being built each year. If that really is the case then the stock is worth over 15 dollars assuming each plant has a 10% discount rate and between now and October 2010 I apply a 30% discount rate.
I don't expect the market to look as far ahead as 2014, instead I expect the market to look about 12 months into the future when the Saskatoon plant will have fully ramped up by October 2010 after having started to produce proteins in April 2010. The North Dakota plant will be near completion by then and people will feel good that this is a business that works and the market will give them credit for the plant that is producing, the plant that is nearly built and a newly announced plant. The NPV of the company with three plants will give you a share price of $4.86.
In terms of liquidity, the three month daily average volume is about 475,000 shares so you could potentially own $600,000 of this stock before worrying about liquidity. The stock closed yesterday at $1.88.
The reason I think that this is the time to get in is because most of the major risks that this company would face have passed.
What is canola?
Canola was developed through conventional plant breeding from rapeseed, an oilseed plant already used in ancient civilization. Selective breeding to develop a variety of rapeseed low in uric acid and it was named canola, from Canadian oil, low acid.
Canola oil has been claimed to promote good health due to its very low saturated fat and high monounsaturated fat content, and beneficial omega-3 fatty acid profile. The Canola Council of Canada states that it is completely safe and is the "healthiest" of all commonly used cooking oils. It has well established heart health benefits and is recognized by many health professional organizations including the American Dietetic Association, and American Heart Association, among others. Canola oil has been authorized a qualified health claim from the US Food and Drug Administration based on its ability to reduce the risk of coronary heart disease due to its unsaturated fat content.
Canola is potentially a great source of protein with the protein efficiency ratio of canola based protein concentrates being nearly comparable to animal based proteins.
|Entry||04/06/2010 09:18 AM|
i have heard that no large food company will buy a product that is not FDA GRAS approved, instead of self-approved, which would take a fair amount of money and time. can you comment on who will buy their output until then?
|Entry||04/17/2010 07:54 PM|
The Food and Drug Administration (FDA) no longer ‘approves’ food
|Entry||05/17/2010 01:12 PM|
Any thought on the latest plant delay? Also, how much capital do you think they'll need to get the Saskatoon and North Dakota plants running full strength (capex, working capital, etc.)? Thanks.
|Entry||08/09/2010 01:20 PM|