Producing material growth – that is exactly what Plant Health Care is all about, not only in helping farmers globally to sustainably grow more, but also in building up its own sales and profits.

The Business – Cost-effective products for sustainable agriculture

Established way back in 1995, the Holly Springs, North Carolina-based Plant Health Care (LON:PHC). Plant Health Care leading provider of novel peptides for plant protection to global agriculture markets

The company offers its various products to improve the health, vigour and yield of major field crops, such as corn, soybeans, potatoes and rice, and specialty crops, such as fruits and vegetables. As the impact of climate change is increasingly felt throughout the globe, for example, the growing problem of drought in certain regions, then the need for increase yield becomes critical, increasing demand for Plant Health Care’s solutions.

It operates globally through agreements with major distributors of agricultural products. 

Its innovative, patent-protected biological products help growers to protect their crops from stress and diseases, and to produce higher quality fruit and vegetables, with a favourable environmental profile.

It offers products to enhance the yield and quality of crops, such as corn, soybeans, citrus, sugar cane, and rice, as well as fruits and vegetables. 

The company provides Harpin aß, a recombinant protein, which acts as a bio stimulant to enhance the yield and quality of crops; and Saori, a vaccine for plants that promotes healthy growth of soybeans and helps them fight disease. Saori is the first product from the company’s PREtec (Plant Response Elicitor Technology) platform. Derived from natural proteins, PREtec is an environmentally friendly technology which stimulates crop growth and ability to withstand a variety of abiotic stresses as well as to improve disease control, plant health and yield. PREtec is compatible with mainstream agricultural practices.

The Products – Strong pipeline

Using environmentally friendly peptides derived from natural proteins, its innovative, patent-protected products help growers to protect their crops from stress and diseases, and to produce higher quality fruit and vegetables, all while being compatible with mainstream agricultural practices.

Plant Health Care’s core patented products act as “vaccines for plants”, making plants healthier, better able to resist disease and stress, thereby improving crop yield and quality.

Harpin aß

Plant Health Care’s Commercial business is driven by sales of Harpin αß, a recombinant protein which acts as a powerful bio-stimulant, promoting the yield and quality of crops. The group sells Harpin αß through specialist distributors around the world. In Mexico, the group also distributes third-party biological products.

Sales of the group’s Harpin αß product increased by 55% in 2021, as market shares grew in core markets; the Commercial business is profitable and cash generative.

PREtec

Plant Health Care’s PREtec (platforms are generating numerous promising products. 

The group is currently focusing on three products targeting very large market opportunities with a value of more than $5bn. These products are under current evaluation with six potential commercial partners.

The PREtec technology platform is proving to be a reliable source for new products. The pipeline is poised to launch one new PREtec product each year going forward. 

The first PREtec product, Saori™, was launched in Brazil in 2021, through PHC distribution partner Nutrien, generating a very positive response from growers.

Saori™ promotes healthy growth of soybeans and helps them fight disease; Brazilian soybean growers spent $2.5bn on fungicides to control disease in 2021, so this is a huge opportunity for Saori™. [Recently announced further plans in Brazil to expand Saori into sugar cane and coffee for disease control.

The Markets

Plant Health Care plc, provides agricultural biological products and technology solutions in the Americas, Mexico, and internationally. 

The group has negotiated and tied-up distribution agreements with major sector players globally.

It recently registered Harpin ab in France, which will enable expansion into the European market, considered to be the biggest globally for biological products.

Early in January the company signed an agreement with Novozymes South Asia for the exclusive distribution of Harpin ab for sugar cane production in India, first sales of which are expected in the second half-year of 2023.

Growth Strategy

The group intends to drive revenue in the short term by focusing on distribution of Harpin αβ by aligning with large distributors with broad market access. It plans to expand sales in broad acre crops where Harpin αβ provides the most benefit to farmers, including sugar cane, corn, soy, citrus, rice, almonds and grapes.

With the launch of Saori™ in Brazil, it has gained access to the largest soybean market in the world.

The target is to launch at least one PREtec product in a major market every year. Saori™ in Brazil in 2021 was the first, followed by the launch of PHC279, for control of orange rust in sugar cane and coffee leaf rust, into specialty crops in the USA with PHC distribution partner Wilbur-Ellis.

PHC949, a seed treatment for control of root-lesion nematode in soybean, has recently been submitted for registration approval.

It has made a significant capital investment by building a pilot plant facility in its Seattle location, allowing the production of peptides on a pilot scale and assisting with developing and optimising manufacturing methods.

It has also secured a production facility for PHC279, which led to the achievement of volume cost targets.

There is an extensive library of PREtec peptides, which can be further expanded. PHC is well positioned to take a lead in consolidating this fragmented sector, due to its strong portfolio and market access.

The group has now been granted fifteen global patents for PREtec peptides and numerous filings are in the process of being reviewed around the world, enabling the building up of its intellectual property portfolio. .

The company’s products have been classified as “low toxicity” products and qualify for ‘fast track’ regulatory approval in the USA and Brazil.

The Share Capital (as at November 2022)

There are 304,662,482shares in issue. 

Larger holders include Ospraie AG Science (17.88% of the equity), Richard Griffiths (13.95%), Janus Henderson (9.92%), Lombard Odier (7.41%), Scobie Ward (5.72%), and Management, Directors and related parties (2.11%).

In addition, there some 33,291,306 Stock Options alive, subject to various performance conditions, such as share price hurdles.

Totally fully diluted, there would be some 337,953,788 shares in issue.

Analyst Opinion – the shares are a Buy, looking for 33p

Ahead of the group issuing a Trading Update and Investor Presentation on 6^th February, together with any further guidance being given by the company, analyst John-Marc Bunce at Cenkos Securities is rating the group’s shares as a Buy.

His estimates for the year to end December 2022 are for revenues to have improved nearly 36% to $11.4m ($8.4m), helping to substantially reduce the group’s pre-tax loss by a third from $4.6m to $3.0m.

For the current year Cenkos Securities, the group’s NOMAD and Broker, is looking for sales to rise over 39% to $15.9m, severely reducing the company’s loss to just $0.3m.

It is in the coming year that the broker envisages a significant advance by the business, with expectations of a 56% revenue increase to $24.5m, generating adjusted pre-tax profits of $5.2m, worth 1.6c per share in earnings.

The analyst states that “we see Plant Health Care as well positioned in the agritech industry and highly undervalued compared to its intrinsic value and peers” giving a 33p price target for the group’s shares.

Conclusion – substantially undervalued

Following years of development this group now has massive upside potential.

As this group aids farmers in increasing crop yields in the face of climate change and growing populations, its model of distributing globally its products through major partners will shine through.

Today it is a leading provider of proprietary biological products for agriculture, with its peptides poised to enter large markets.

The group’s Management is highly experienced in agricultural research and development, licensing and sales and is capable of further developing and capitalising upon its growing portfolio of new technology products.

In the meantime, its strong cash reserves and strict control of expenses should be sufficient to enable it to boost global sales over the next year or so, bursting the group into cash breakeven in 2024.

By the end of next year this company could well be reporting sales of over $25m, have some $5.5m net cash and making $5.2m profits.

With its shares at around the current 11.5p, the group is substantially undervalued at only £36m.

The FTSE 100 was relatively subdued on Friday as markets continue to digest softer economic data and weighed the prospect of recession in major economies.

After a global recession looking almost certain this year, markets had been buoyed by more optimistic forecasts.

However, this week’s poor Chinese GDP growth figures, slower than expected US and UK retail sales, and stubbornly high UK inflation once more raised concerns about the health of the global economy.

Heavy selling in Europe yesterday subsided on Friday with the FTSE 100 carving out minor gains going into the close.

There was further demonstration of positioning towards cyclical sectors and rotation away from defensive names, which provided insight into mild underlying optimism. Miners, banks and consumer shares gained while those with bond-proxy attributes fell.

Consumer shares including JD Sports, Ocado, Kingfisher and Sainsbury’s were on the up, despite disappointing UK retail sales figures for December released this morning.

It is interesting to note the disconnect between the 1% monthly drop in December’s UK retail sales measured by the ONS, and the relatively upbeat festive results from most of the FTSE 100’s consumer stocks.

SSE was one of the top risers after a positive update that included a sharp revision higher in their EPS guidance.

UK banks

Banks were among the gainers as investors positioned for higher rates. Despite concerns about global growth, central banks are predicted to hike rates further in the coming months – a major headwind for banking earnings.

“While data suggests inflation is easing in parts of the world, many central banks are still intent on raising interest rates further which creates an opportunity for banks to improve earnings, as long as they aren’t stung by rising bad debts in a recession,” said Russ Mould, investment director at AJ Bell.

Lloyds shares briefly touched the psychological 50p mark earlier this week, before falling back. Shares in Barclays, Lloyds and Natwest edged higher on Friday.

SSE have evidently enjoyed the period of higher wholesale electricity prices as they increase EPS guidance by 25%

The power generator has increased EPS guidance from 120p to 150p as it reaps the rewards of operating in an industry buoyed by higher wholesale power prices.

In addition to higher wholesale prices, SSE Renewables unit generated more power from offshore and onshore wind, as well as hydro, in the nine months to 31st December. Output amounted to 6,860 GWH, materially higher than the 5,920 generated in the same period a year ago.

However, renewable output was only 90% of the planned 7,623 due to adverse weather conditions and delays to their Seagreen project.

SSE will make record investment this year as it pursues a fully-funded £12.5bn investment into a programme designed to achieve net-zero goals.

“SSE raised its full-year EPS guidance for 2022/23 by a lofty 25%. Higher gas prices and better gas storage optimisation were to thank for this, helping to offset lower than expected renewables output. Overall, the struggling markets appeared to like this update and the group’s valuation is now trading up around 9% over the past year,” said Aarin Chiekrie, Equity Analyst at Hargreaves Lansdown.

Chiekrie also alluded to the strength of the SSE dividend, even after the company choose to focus on investment into their infrastructure and the cost of higher dividends. The dividend will be rebased to 60p for 2023/24 and grow at 5% per annum thereafter.

“Despite the rebase of its dividend to fund investment plans, the group’s still paying a healthy dividend at a 3.9% forward yield. But remember, no dividends are guaranteed.