Company: Solarvest Bioenergy Inc.
Listing : TSX Venture, Frankfurt
Ticker: SVS.V , 0ZJ:FRA
Market cap at time of publication: $ 15 MCAD
Stock price at time of publication: $0.345 CAD
Business: Patented plant based pharmaceuticals from algaes and Clean energy hydrogen production
Comparable peers:
Website:http://www.solarvest.ca/ and for the omega 3 products: https://eversea.ca/
Solarvest Bioenergy is a new and extremely exciting nanocap position in the ESGFIREAT40 portfolio. The company has recently launched the worlds first organic made omega 3 from algae which is both patented and vegan friendly. If anyone has watched the stock price of the plant based baby foods company Else Nutrition which so far has soared a wooping 1000 % from december 2019 till today (4/4 2021) you are surely aware of the massive interest and demand for sustainable plant based products.
What separates Solarvest Bioenergy from other plant based food companies is that they also have a leg in Clean energy hydrogen production and high value proteins and astonishingly enough also CBD oil from algae. Solarvest Bioenergy has an impressive 68 patents filed in virtually all commercially important countries, many granted. Also a HUGE advantage is that the production of the company is Carbon neutral which will open many doors to sustainable capital, partnerships and goodwill!
The company has a truly impressive patent and possible product portfolio and the following are among the most exciting ones:
• Production of algae biomass without using chemicals – Organic Omega 3
• Controlling the expression of chloroplast to induce the production of hydrogen gas and or the expression of therapeutic proteins which could cover CBD oil.
• The company has completed a feasibility study and has implemented a research and
development program to supply Cannabidiols (CBD +)
The Solarvest Algal Expression Platform is an ideal candidate for CBD production with substantial
advantageous over hemp and cannabis production
• Transgenic Algae for Delivering Antigens to An Animal
An Animal Vaccine Patent for feeding transgenic algae with an expressed antigen to provoke an immune response
• Dental Composition and Method for suppressing plaque formation on canine (and other animal) teeth
• Method of Making Microalgae-based Animal Foodstuff Supplements
Trace metal binding system that delivers chromium, cobalt, copper, iron, manganese, molybdenum, selenium and zinc to animals
• Antimicrobial protein (AMP) expression for the treatment of malaria
Business model
Solarvest Bioenergy describes their business model in terms of three different applications all using algae that has big synergys, as explained in the picture below. The common demoninator is that it’s comparatively inexpensive to produce algae.
My interpretation in discussion with management is that their business plan is to finance their most promising projects shown above with the revenues expected from the omega 3 product launch. This will maximize shareholder value while keeping dilution to a minimum. What really makes this plan exciting is the patent to source hydrogen from algae which does NOT require massive amounts of electricity which almost all other hydrogen alternatives require and is a problem since renewable energy still is hard to store. It would make sense for management to sell their omega 3 business division (for the right price) to global actors if such a bid should materialise in a future scenario after building value. This could in turn finance other possible products from the possible portfolio line.
The omega 3 business
There is currently a HUGE problem with overfishing in the seas globally. Fisheries harvest 93.4 Million tons of fish per year and out of this 31.4% of commercial fish stocks are now fished at biologically unsustainable levels, triple the level of 1974. This unsustainable fishing affects the eco system. Since many shallow water fish stocks have become depleted and/or outright collapsed, fishers have resorted to targeting fish stocks in deeper and deeper waters. The average depth of catch has increased in recent years to over 1000 meters and in some cases to 1800 meters. Fishers are literally reaching into the bottom of the barrel.
Omega 3 production from algae is a safe and sustainable production method which could be a solution to this problem!!!
The Omega 3 market is a huge potential revenue source for the company at a total adressable market worth 24 billion USD . I estimate that the unique product by Solarvest has the potential to become a mainstream adopted ingredient in all of the healthy food business products globally both as an additive in standalone products (protein powder, smoothie blends, baby foods etc) and also in separate products sold directly by the company either by own brand or rebranding to customers ( for example chocoate bars, omega 3 pills etc). It should be noted that the company markets this product under the brand name Eversea. The omega 3 business is competitive however the advantages of the companys Omega 3 product are extensive:
• FDA approved
• Totally sustainable production
• First and only Organic Omega-3 (DHA & EPA)
• The most valuable/bioavailable forms of Omega 3
• No solvent residues
• Hexane and acetone are typically used to extract oil from fish and krill
• Free from toxins found in fish from the ocean (mercury, PCBs and dioxins)
• Non-GMO product
• Patented
• Vegan/ Vegetarian
Market strategy
My estimate is that Solarvest Bioenergy will have a relatively easy task of convincing major plant based product producers to include the companys plant based omega 3 additive in their products. This is also based on the fact that their is a BIG demand for organic products in North America . 18% of Americans look for organic ingredients and consumers are prepared to pay 24% premium for organic products. Current organic options (plant based) are short chain (ALA) with less than 10% absorption rate meaning the human body can only take up 10 % of the omega 3 in the actual product. The product line from the company is a Global First. There are no Fish, Krill or Algae Products on the $15 billion Omega-3 market that are 100% organic. The company currently has its omega 3 production outsourced to a division of a German multi-billion dollar food company and the strategy is to build the order book so that a Canadian facility improves the economics of North and South American supply.
The go to market strategy is further explained in the picture below:
The advantages of the algae platform
There are many advantages of using algae based production which Solarvest Bioenergy bases their product platform on.
Firstly the common demoninator is that it’s comparatively inexpensive to produce algae. Algae production is also able to use low cost inputs (ingredients) able to feed the growth of bioactive proteins on the algae platform. It’s able to produce consistent, high yield concentrations of final products. Also the versatility provides the ability to produce multiple complex products and the company has demonstrated the ability to produce complex therapeutic proteins. Another application includes the sequestration of carbon dioxide (CO2). The process makes it easy to control the production environment and a replicable process allows expedited product development.
Other advantages of using the Algae platform is that
• It can produce tons of Biomass in as little as 100 hours.
• Algae can be produced inexpensively and are inherently safer than current expression systems since algae harbour no known human pathogens.
• The same algal culture, production system may be utilized for numerous protein targets.
• There are 400 proteins used in human medicine; many of these have a high market value.
• Insulin is worth $42 billion
• Erythropoietin is worth $9 billion
• Bone Morphogenetic Protein is worth $1billion
Management
Solarvest Bioenergy has a very impressive management teams for a small nanocap company which bodes extremely well for future growth. The management team as experience from buyouts, executive positions at large pharmaceutical companies where they have specifically worked with acqua marine harvesting. My opinion is that the management team is well equipped to execute the growth strategy for Solarvest Bioenergy and insiders hold 28,4 % of the shares and have only bought shares (i.e no selling) over the past 12 months. Full description of management in picture below:
Risks
There are several risks that need to be taken into consideration when investing in a nano cap company like Solarvest Bioenergy. Below is a summary of the most obvious ones although there may of course be other risks not covered:
Share price volatility risk
The average trading volume in Solarvest BioEnergy currently amounts to 86 000 CAD per day. The trading volume is of course occasionally higher especially during days of news releases however investors need to be aware of the risk of extreme volatility both upwards and downwards due to the liquidity of the stock. This can cause sharp spikes upwards but also sometimes unexplainable downward spikes when someone wants to unload a large amount of shares in a trading day.
Financing/lack of sales risk
Solarvest Bioenergy is currently not profitable , management expects revenues for 2021 to amount to between 2-4 MCAD and this number is expected to ramp up considerably in 2022. The company recently took in 2,25 MCAD in a private placement so for the time being the financing is not an issue. The proceeds from this private placement are to be used for the market launch of the new algae based organic omega 3 product series. If revenues take longer to materialize from sales than management counts on this could poise a financing risk for the company
Competitors and litigation risks
Solarvest Bioenergy is a small actor in the pharmaceutical and omega 3 industry and it cannot be ruled out that other actors may, although unlikely, be able to work around the companys patents or infringe the patents causing a situation where Solarvest Bioenergy has to engage into litigation against larger and more well financed actors.
Potential and Conclusion
Solarvest Bioenergy definately has the true potential to become a billion dollar company and 10X bagger or more with its many patents, unique product offering and experienced management. The company has an impressive patent portfolio for its small market cap with many exciting prospects with each and single one of them possesing a billion dollar revenue potential. The path to becoming a billion dollar is of course neither easy nor straight but the bottom line is I believe that Solarvest Bioenergy has all the right foundation to get there. It’s now up to management to execute and prove the expansion strategy they’ve planned and since they seem very keen on keeping their shareholders updated in transparent way I’m sure we can expect alot of news shortly!
Upside potential and near term evaluation
My personal bull case estimates has the company turning a revenue of 2,5-3 MCAD in 2021 and with revenues increasing to 8-12 MCAD for 2022. Revenues beyond this is harder to calculate but seeing as the company will likely be selling at bulk quantities in 2023 there is nothing that says revenues cannot hit upwards of 20-30 MCAD in 2023.
It’s hard to estimate when the company will reach profitability but I would not be surprised if it could happen already in 2022 since I expect gross margins to land around 50-80 % based on comparison with other plant based food companies.
Comparing evaluation to another peer is Else nutrition which is projected to have a turnover of 9 MCAD in 2021 giving it a 33X sales multiple at current share price. In 2022 Else nutrition is expected to have a turnover of 57 MCAD giving it a 5X sales multiple IF the share price stays on the same level as of the publication date (3 CAD).
10X sales estimate
The market cap for Solarvest Bioenergy as of the publication date of this article is 15 MCAD. If we put a 10X sales multiple for my Solarvest estimate it equals a market cap between 25-30 MCAD on 2021 sales. For 2022 the estimate with a 10 X sales multiple equals 80-120 MCAD market cap.
This projection gives the company a possible 100 % upside potential for 2021 and a possible 782 % upside for 2022 IF the company delivers according to the estimation and IF the market thinks a 10X sales multiple is a fair value, this evaluation multiple could be both bigger (upwards of 20-30 X sales) and smaller (2-5 X sales). This estimate does not put any value into consideration for all the other patents which Solarvest Bioenergy has ownership of out of which the hydrogen and CBD products are the most exciting prospects!
I own shares in this company personally and this is not to be considered financial advice, always do your own research!
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