Ladies and Gents,
Love reading and passing info. Here's some I found through Microsoft Investor.
Mike
Investor Features Syndicate Sunday, December 29, 1996 7:21 PM
INVESTOR FEATURES MENU
Column: SHAKING THE MONEY TREE
Title: Agribiotech's Forage Grass: Putting Mom 'N Pop Out To Pasture
Summary: Agribiotech hopes to buy enough Mom 'n Pop forage seed
firms to dominate this $1 billion market with a 45 percent share in
2001.
Writer: Robert Metz, winner of the John Hancock Award and the Gerald
Loeb Award for financial journalism, pioneered the Market Place
column while at The New York Times.
AgriBioTech's Forage Grass: Putting Mom 'N Pop Out To Pasture
by Robert Metz
Is it possible that after generations of farming here, there is a
dominant position in the seed business that hasn't been taken? Dr.
Johnny Thomas thinks so. He hopes to rule the forage grass field,
alfalfa and the like.
His seed firm only recently sprouted itself. Four years ago,
AgriBioTech had sales of about a million. After many acquisitions,
it will do $50 million in the year to June '97. Later purchases may
put sales at $200 million in the 1999 year. AgriBioTech is already
the fourth largest factor in forage grass seeds.
To finance AgriBioTech's ambitious growth plans, Thomas is hopeful
of raising $30 to $50 million in new capital this summer. Looking
forward to the year 2001, Thomas hopes to have locked up 45 to 50
percent of this $1.1 billion industry. So he's looking for sales in
the vicinity of $500 million. This five year trek might just bring
$2 a share in earnings, says one cautious fan.
As the name suggests, forage grass covers the fields the cows roam
as they eat and chew their cud. They consume the full stalk, not
just the seeds. AgriBioTech is, to a far lesser degree in turf seed
grass, too, the stuff we mow when we'd rather be surfing, indoors or
outside. Still, AgriBioTech may truly be described as a pure play.
But then so is the lemonade stand your kids set up on a summer day.
But Thomas makes a lot more promises.
Most forage seed sellers are mom 'n pop farmers whose daughters
and sons probably are surfing. Thomas decided that this
highly-fragmented trade was ripe for consolidation. He is in classic
mode, vis a vis John D. Rockefeller who built his oil monopoly
gobbling up small regional firms mostly run by, well, moms 'n pops.
Wait! Thomas' profits are still a dream.
Thomas, a farm boy with a PhD in genetics and plant breeding from
Oregon State, is on track so far, though he hasn't gotten Nasdaq to
put his shares on the national list. Price is too low at just over
2. Nasdaq requires consistent trades at 3 or better. The stock was 5
when Thomas applied for listing. He's argued that average price is
over 3, but Nasdaq won't budge.
Until the shares make Nasdaq's national list, they cannot be
borrowed against. Margin purchases foster trading. What's more,
analysts rarely follow shares with the "X" designation. AgriBioTech
will trade as ABT when and if the stock rises enough to get the
national listing. Ironically, most stocks become more attractive
when priced at 3 and up. But on Friday, ABTX traded in the pink
sheets at 2 1/32 bid. Meantime, Dr. Thomas pitches his sod busters
when they come to his home base to visit.
Thomas has slyly situated AgriBioTech in Las Vegas where he can
entertain moms 'n pops inexpensively. They may not win a lot of
chips, but they can sure cash in their seeds with Johnny Thomas.
Here's word from a Wall Street fan who has listened to the story
and worked on the numbers. Otis Bradley of Gilford Securities in New
York, a veteran high tech share specialist, warns that ABTX is
clearly speculative. He keeps in mind the fact that AgriBioTech has
yet to show a profit. Yet he's taken with ABTX's "very simple,
attractive corporate goal, which is to become the premier, dominant
(pure play) factor" in forage grass seed. Bradley was told of ABTX
by what he cautions is a "very promotional" public relations firm
which has brought him investment ideas in the past, some good, some
not so good. In September, Bradley met Dr. Thomas and was impressed
with what he was trying to do. The concern was making a push for a
share price of 3 at the time but Bradley held back. ABTX had had a
$3.3 million (45 cents a share) loss in the June 1996 fiscal year.
ABTX's 18 cent a share loss in the June quarter was its biggest
quarterly loss ever. But the loss in the September quarter was less
than expected, a nice surprise. Bradley saw that AgriBioTech would
lose even less money in the December quarter. That would mean two
succeeding quarters of diminishing losses. And Bradley concludes
ABTX will probably earn money in this fiscal year.
The forage grass seed business is seasonal. Companies in the
business invariably do best in the March quarter before the planting
season begins. The upcoming March quarter is expected to be quite
profitable, enough so that AgriBioTech could in fact show black ink
for the year ending June 1997. Bradley recommends the shares as a
"speculative buy," revealing that he now owns the stock personally.
He warns that future growth depends on: 1) continuing availability
of acquisition candidates, 2) the competition for acquisitions, 3)
ABTX's financial resources, and 4) the company's share price. If
AgriBioTech shares go up, financing costs, of course, go down.
Bradley notes some negatives. Management is "highly promotional,"
but Bradley favors managements who believe in their future. He notes
that ABTX insiders own 4 million out of the 13 million shares.
Capitalization has been added to so as to finance acquisitions and
will of course rise more. When new shares are issued, there is
potential dilution of existing shares. Also two convertible
preferred issues have been "leaking" a supply of shares, putting
pressure on the common. Meantime, highly speculative, low-priced
issues have lagged even as major averages have set records. January
effect, which can lead to higher share prices once year end tax
selling pressure lifts, may benefit neglected low priced issues,
says Bradley. Kickers: Bradley notes ABTX is pursuing biotechnology.
With it, ABTX might compare favorably with highly-multiple 'bio'
seed firms. ABTX has a new acquisition and a Monsanto license that
have begun the bio process.
Bradley noted to me that two years ago, Delta and Pine Land sold
at four times AgriBioTech's current price. DLP is up seven fold
since then, "doing the sort of thing Thomas thinks he can do." Is
this Apple Pie? Or pie in the sky? Or cow pie in the back forty? It
could be all of the above. That is to say, ABTX will fluctuate. So
wear your boots. |
