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:
Hereâs 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 ÂŁ84.3m over the past 12 months.
What are your thoughts on $OTLY?
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So I took another look at Oatlyâs 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 Marchâs low, roughly 40% even after a big correction this month. In their filing they state âWe are not assured of continued supply or adequate pricing of raw materialsâ, 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 an 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 |
|---|---|---|---|---|---|
| Beyond Meat | 16.1 | 11.8 | 7.5 | 5.5 | 24.8 |
| Tattooed Chef | 10.5 | 6.5 | 4.8 | 3.5 | 5.3 |
| Laird Superfood | 10.9 | 6.2 | 4.0 | N/A | 3.3 |
| Else Nutrition | 147.8 | 24.0 | 3.7 | N/A | 23.0 |
| Oatly | ~23.8 | ~12.5 | ~7.7 | ~5.3 | ~5 |
Oatlyâs 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).
Miscellaneous details
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.
Conclusion
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. Thereâs 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 look 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.
Regards
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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, Iâd repeat my earlier thoughts - I would personally need clarity on margins before buying at a price anything like current. Though Iâd say it probably has limited downside due to the large book value and increasing risk appetite atm.
No large downside? I like oatlyâs 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 canât 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.
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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 - Subscribe to read | Financial Times 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 Oatlyâs brand. Is this the sort of behaviour itâs 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.
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Wonder if that is an Aldi/Lidl alternative?, canât have another caterpillar gate 
Pretty damning short report today. Besides some of the moot points or things they havenât had time to explain:
Inaccurate US revenue
EPA and wastewater violations at US plant
Overstating gross margin
Not recognising capex in order to delay depreciation (as an accountant alarm bells are starting to ring here)
Aside from these serious investigations, evidence has been gathered that suggests major problems in inventory accounting and tracking, growing receivables, the CFO having to restate financials at a previous employer and perhaps most astonishingly that founder Oste, who is on the Board, is developing competitive products that Oatly will not financially benefit from (!).
Instead of providing a lengthy rebuttal on their official investor page, Oatly has only provided a small statement, directly to CNBC which is slightly underwhelming to say the least.
âThis short seller stands to financially benefit from a decline in Oatlyâs stock price caused by these false reports,â Oatly said in a statement to CNBC. âOatly rejects all these false claims by the short seller and stands behind all activities and financial reporting.
In their Q1 presentation they also stated they have âprioritized growth over short-term profitability to meet demandâ.
I think all the above, together with a continuing lack of guidance on margins against a backdrop of oat futures spiking is a pretty strong deterrent for me.
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I guess Oatlyâs trademark/brand is all they really have at the end of the day. After all, itâs not like thereâs one MASSIVE name in soya milk - in fact I just buy the cheapest supermarket own brand soya milk because itâs all much of a muchness to me⊠and Iâm talking about the ultra own brand/white label/basis/bargain stuff.
I refuse to believe that Oatlyâs oat milk is really that much better than the competitors so I can understand them being super protective of their main (only) asset.
Edit: I canât even imagine a world where one company tried to own the whole soya milk segment!
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I think from their whole ânationwide shortageâ marketing schtick they truly do believe they are oat milk, which was maybe true in, like, 2017, but not today, and competition will only increase. If this is now just a market share and brand story, hearing things about catastrophic production/distribution management and legal action against small farms is dispiriting.
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Thoughts on this with the recent dip in share price?
While other brands are on the rise, they have catching up to do with Oatly in terms of taste and quality. I have tried the other brands, coffee and my chai taste the best with only Oatly barista. Theirâs is the only Vegan yogurt that comes close to actual yogurt in terms of taste, isnât repulsive and hasnât required âgetting used toâ on my part.
I do think they seem worried if they are suing âpure oatyâ as that brand doesnât seem to come close to Oatlyâs standards and quality. They should instead invest in keeping their loyal customers and building on from there because I know that no matter how many other brands come on the market, I will stick with Oatly unless they decide to hike their prices.
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AFAIK unlike copyright you canât selectively enforce trademarks, so if they donât protect their brand against some small business (no matter how minor the threat is) then they will struggle to defend themselves against Nestle or Unilever if they did something similar.
Anyway this stuff slaps:
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Please donât do that again.
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As a fully paid up coffee wanker oatly barista edition is the best product on the market currently, but only a matter of time until the supermarket own brands catch up and those posts above about their reporting concerns mean I will probably try and dump my shares if and when the price improves a bit.
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