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 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 |
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).
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. 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 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.