Found this analysis (1/15/98) in the Motley Fool (AOL):
AgriBioTech develops, processes, packages, and distributes forage and
cool season turfgrass seeds. According to AgriBioTech's analysis of U.S.
Department of Agriculture (USDA) statistics, the total market for forage
and turfgrass seeds that it serves was approximately $1.1 billion in
1996, equally divided between the two product lines. In contrast, in
1996 sales of corn seeds were $1.3 billion, sales of soybean seeds were
$700 million, sales of commercial vegetable seeds were $400 million, and
sales of home garden vegetable seeds were $300 million. Despite the
higher profile of vegetables and soybeans, both forage and turfgrass are
markets of the same size.
Forage seeds get their name from the fact that herbivores like cattle
and sheep forage for the grass that they eat. According to the USDA, 61
million acres of forage crops were harvested in 1996, generating hay
revenues of $12 billion -- not a bad mark-up considering the seed
materials only cost $550 million. Forage sales are driven by consumer
demand for milk and meat.
Turfgrass, on the other hand, is the stuff that makes up your lawn.
Turfgrass demand has grown at a 6% to 9% rate per year from 1987 to 1997
due to a number of factors, including a strong home-building
environment, the increased popularity of turf-intensive leisure
activities like golf, and the increasing infatuation among home-owners
to have a lush, green lawn.
AgriBioTech is all about consolidating the forage and turfgrass seed
industry, integrating any units it acquires into a machine-like
distribution system that cuts overhead and maximizes sales. The company
has also used its acquisitions to build a comprehensive inventory of
elite forage and turfgrass germplasm (i.e. chromosomes and genes),
meaning that in the future the company will probably become the partner
of choice for any agricultural concern looking to penetrate these
markets.
FINANCIAL FACTS
Income Statement*
12-month sales: $133.1 million
12-month income: ($1.13 million)
12-month EPS: ($0.09)
Profit Margin: N/A
Market Cap: $518.3 million
(*Pro forma)
Balance Sheet
Cash: $1.8 million
Current Assets: $54.9 million
Current Liabilities: $41.9 million
Long-term Debt: $6.5 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 3.9
HOW COULD YOU HAVE FOUND THIS DOUBLE?
The rapidly expanding revenue stream as the company successfully
executed a "gobble-to-grow" strategy in the fragmented forage and
turfgrass seed market is really what should have caught investor
attention. Any company growing revenues 400% to 500% year-over-year has
potential -- particularly when it is focusing on a viable niche that has
been ignored by the big names in its respective industry. In this case,
the fact that Pioneer Hi-Bred, DEKALB Genetics, and Novartis AG were all
not paying attention to the forage and turfgrass seed market created an
opportunity here.
Whatever opportunity was here, management created from scratch. From
January 1, 1995 to the end of the first quarter of fiscal 1998,
AgriBioTech has completed 17 acquisitions. These deals have vaulted the
seed purveyor from basically zero dollars in sales for all of calendar
1994 to an annualized revenue run-rate of $161.8 million at the end of
the first quarter of 1998.
WHERE TO FROM HERE?
Given the company's success in building up a business around forage and
turfgrass, the possibility of it eventually becoming an acquisition is
very real, although certainly nothing one would want to wager on. Cash
flow is about double earnings due to non-cash depreciation and
amortization charges, but even this does not make the company cheap.
Investors should recognize that at this valuation, the risks have
increased substantially relative to the $2 and change they were paying
for these shares only twelve months ago.
-Randy Befumo |
