I recently added to my holding in Agronomics (LSE: ANIC) and I plan to keep buying this penny stock. My latest purchase came after I noticed the share price had dipped below 10p for the first time since December 2020.
Here’s why I’m bullish.
Science fiction that is fact
Agronomics is an AIM-listed venture capital firm that invests in start-ups in the nascent cellular agriculture industry. That is, the production of agriculture products directly from cells, as opposed to raising an animal for slaughter or growing crops.
The products are made (or cultivated, as it’s called) from real animal cells. So, unlike plant-based products, which are struggling to gain traction with consumers, this is actual meat. It is just grown for consumption in a different setting than a field or cage.
Therefore, I can eat a chicken breast that was never part of a live bird, which obviously involves no animal cruelty.
Admittedly, this sounds like science fiction. But in vitro fertilisation (IVF) and the cloning of sheep also sound equally implausible to me. Yet, here we are. So I think the possibility of new companies disrupting parts of the $1.3trn global meat, poultry, and seafood market isn’t at all fanciful.
Portfolio progress
In June, the US Department of Agriculture (USDA) gave two food technology start-ups permission to sell lab-grown chicken. These were GOOD Meat (owned by Eat Just) and Upside Foods.
East Just makes nuggets from animal muscle cells in a lab. Meanwhile, Upside Foods is a private start-up held in the portfolio of Scottish Mortgage Investment Trust.
Agronomics is invested in similar start-ups, spanning lab-grown chicken, pork, beef, bluefin tuna, coffee, cocoa, dog food, and dairy products.
It also has a 7% portfolio weighting in VitroLabs, a US-based company making billions of square feet of leather without harming a single cow. Luxury giant Kering, owner of Gucci, has backed VitroLabs to supply it with cultivated leather for its products.
Another thing I like about Agronomics is the people involved, notably non-executive chair Richard Reed and director billionaire Jim Mellon. Reed co-founded Innocent Drinks, the smoothie company that Coca-Coca bought in 2013 in a deal that reportedly valued it at £320m.
He therefore has firsthand experience of building up a consumer brand from scratch and selling it on for big money. That should prove valuable if food industry heavyweights like Tyson Foods start looking to make sizeable acquisitions in the space.
Buying at 9p
In August, the first application for cultivated meat approval was submitted to the UK’s Food Standards Agency. This was to sell cultivated beef steaks and follows a similar recent application in Switzerland. Approvals have already been granted in Singapore as well as the US.
However, the unavoidable risk here is that it might take another decade or so (if ever) for cultivated meat to go mainstream. And while these products are arguably ‘cleaner’ — they don’t contain various antibiotics, for a start — they are still costlier to make. Therefore, manufacturing costs will need to keep coming down.
Still, I think the overall risk/reward setup here is very attractive at 9p per share. Agronomics has smart backing, no debt, and over £150m on the balance sheet. I’m going to keep loading up on the shares whenever I have spare cash.
