This Swedish company operates in the plant-based food sector producing oat milk. It has a host of celebrity investors including Oprah Winfrey, Natalie Portman and Jay-Z.
Today is the big day
The big question is:
Here’s a closer look at some of the numbers:
- Backed by the likes of Oprah Winfrey and Jay Z, the Swedish vegan dairy brand has products available in 50,000 locations in 20 countries.
- Losses widened to $60.4 million in 2020 from $35.6 million in 2019. However, revenue more than doubled, to nearly $421.4 million. It had 792 employees in 2020.
And a look to the future:
- Oatly has revealed plans to build a site in Peterborough, UK. It is now the fourth-biggest brand in the milk and milk alternatives market, having seen volume sales soar 91.3% and value sales rocket 95.9% to £84.3m over the past 12 months.
What are your thoughts on $OTLY?
So I took another look at Oatly’s outlook and valuation.
Capacity and Outlook
From their filing they had a capacity of 301m litres by the end of 2020, and expect to increase that to 600m by year-end, 1b by 2022, and 1.4b by 2023.
Oat futures have risen quite a bit since last March’s low, roughly 40% even after a big correction this month. In their filing they state “We are not assured of continued supply or adequate pricing of raw materials”, so one can assume they do not predominantly buy with fixed long-term arrangements.
Assuming oats are procured at current rates, the gross margin is retained at 31% and they manage to sell all their output we are looking at approximately $700-900m in revenue this year, $1200-1400m in 2022, and $1800-2000m in 2023.
IPO details and Financials
The company has raised gross proceeds of $1435m which will be used to invest in several new plants to get to capacity, and pay off part or all of the debt. This would result in between $1-10m in interest expenses being freed up. The company will have a approximate cash position of $1.5b, with a book value of approximately $2b. Net margin was -17.5% in 2019, narrowing slightly to -.14.3%, and with a lower interest expense I can see this narrowing further to single digits in 2021.
Competitive and valuation analyses
|Company||'20 P/S||'21 P/S||'22 P/S||'23 P/S||Book Value|
Oatly’s distinctly Swedish sense of humour is reflected in a very cohesive marketing message that anyone who has briefly glanced at a bottle will recognise. This also helps give Oatly pricing power, which it has already utilised to charge a premium to its plant-based competitors and should help insulate it from rising costs. Oat milk is also one of the best plant-based options when considering cost, environmental impact, nutrition and taste, and Oatly is synonymous with this segment (quite uniquely).
In February the company and its shareholders entered into an agreement that would allow an additional listing on the Hong Kong Stock Exchange. Its largest shareholder is China Resources and operates a joint venture with the company.
This is a really difficult investment proposition. Inflation worries are not good news for this stock on the one hand, but on the other, it is a clear price maker in the global plant-based food market, and may soon start to exhibit monopsonic power in a very similar way to Ferrero. There’s no beating about the bush, the stock is expensive, both on this years sales, and especially next years. The question is whether other vegan valuations are sustainable too (especially BYND); if not, there will be pressure on the price. In my opinion Oatly does have the best chance of all the plant-based names to post a solid profit by 2023.
The Asian market is absolutely huge for the future of Oatly, given high lactose intolerance. A 500% YoY sales increase shows the huge potential. But essentially being forced into future dilution is not a good luck for shareholders who have just paid 4x the last private round, and 21% of company revenues in China are concentrated with the big ecommerce platforms like JD. There is also no official confirmation of how much debt, if any, will be paid off, and the prospect of them not utilising the IPO to do that in the face of rising interest rates may be enough to put this on the backburner. As capital expenditure ramps up this year and clarity on margins becomes more evident, a true fair value will be easier to identify, for now this is not a recommend.
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Enjoyed your in depth review on this. Do you have any further thoughts on this now.
I second that what are your thoughts on this had the chance to buy it at 22$ but thought against it and not sure on the potential of this company
Thanks guys, I’d repeat my earlier thoughts - I would personally need clarity on margins before buying at a price anything like current. Though I’d say it probably has limited downside due to the large book value and increasing risk appetite atm.
No large downside? I like oatly’s product but would not invest. They have no moat, literally thousands of companies can produce the exact same products. Massive competition and sky-high valuation.
Might work out, might not.
All fair points. I mean it depends if you class $15b to a low multiple of $2b as large. Probably is but it does provide a floor and can’t see it trading lower than a couple times book in this market, which lets be honest is this companies fair value. The rest of the value is what is being assigned to the brand and FOMO.
Worth being aware of. Sorry I only have a link to Financial Times article which is pay walled.
Oatly takes Cambridgeshire family farm to court in trademark dispute - https://on.ft.com/3pAvaPU via @FT
In summary. Oatly is taking legal action for trademark infringement against a farm over its PureOaty drink.
I think the (probably low?) risk here is actually to Oatly’s brand. Is this the sort of behaviour it’s core customers will like to associate with. To the layman (like me), these do not look alike. Especially when compared to what the supermarkets get away with.
Wonder if that is an Aldi/Lidl alternative?, can’t have another caterpillar gate