INTRODUCTION:

BYND is a company that produces plant-based meat. It’s currently at its growth period having their IPO very recently in 2019. These couple years have been rough for BYND as it burns through cash to establish market share, faces negative net income and multiple health scares. Management’s plans for success are Price Parity with Animal protein, Enhancing Taste, Aroma and Texture to taste like Animal protein, Education on Misinformation + Health benefits of BYND and Plans to cut off fats such as Better Inventory management, Layoffs, Increased capital efficiency, Improve their operating expenditure situation.

REVENUE:

TOTAL ADDRESSABLE MARKET

I’ve used a top-down approach when building my revenue model. I followed the revenue forecast of the meat industry [Plant based inclusive] (SOURCE)

%STAKE

The %stake of the market held by BYND changes to a small extent to avoid being too optimistic in my forecast. I used historic numbers when forecasting %stake.

COST

The general principle I took for forecasting Cost was following management’s guidance from 2023 Q1, their goal of “Sustainable growth” and focusing more on margins.

COGS

Initially, COGS is going to be lower from reduction in co-packing and overall headcount bringing production more in house.(SOURCE)

But going forward, COGS is going to be lower due to higher economies of scale. (SOURCE) Management has set forth that they plan to achieve price parity with animal protein by 2024, so the largest fall in COGS will appear in the first few years of forecast.

The moment price parity is achieved, I’d guess that it takes 2-3 years for BYND to reach close to the level of margins as the animal protein industry as BYND needs to sort out other issues e.g., how to more efficiently ship higher volume, Agriculture has ops. margins of 7.84% (SOURCE).

ADVERTISING

Advertising is going to slightly increase in the first few years of forecast. Management has stated that there is a lot of disinformation in the market and consumers are relatively unaware of the health benefits of BYND (SOURCE). So, management will scale up advertising efforts. Opting for less granularity I assume that advertising will remain the same as 2022.

SHIPPING

Opting for less granularity when forecasting Shipping, the cost of Shipping is constant for the past few years so Shipping is assumed to follow historic trends.

During the high growth period, BYND may be not ready to deal with larger volume of sales so I’d assume that cost of shipping slightly ticks upwards for the next 2-3 years before tending back down.

OVERALL

Margins of BYND will be higher than Animal protein due to cheaper production cost (SOURCE), e.g. Pea protein costs $5/kg whereas Animal protein costs $300/kg

NON-CASH ADJUSTMENT:

D&A and CapEX

Management has given out guidance that they want to get more capital efficient, so for the first few years of forecast I’d assume that BYND has net negative or close to net negative CapEX for the first few years. Onwards, as BYND develops better products and gets more widely recognized they will begin priming their net reinvestment for growth before tapering down for maturity.

Change in NWC

Management has given guidance that their inventory levels are quite high and they are planning on selling off, I’d assume that the first few years they are aggressively selling off inventory. But in the long run, they will have positive change in NWC as I believe they may require to hold some stock.

WACC:

COST OF EQUITY

RFR (1M Average) = 3.53%

4105.02 = [4.58% x 4105.02] x (1+5%) / (1+R) + ([4.58% x 4105.02] x (1+5%)) x (1+3.417%) / R – 3.417% / (1+R) ^2

R = 8.635%

ERP = 5.105%

Beta = 2.00 (SOURCE)

COE = 13.74%

COST OF DEBT

BYND has no credit rating, negative EBIT so no interest coverage ratio and no outstanding bond with a market YTM. So, the best proxy to use is book yield.

Interest expense = 3.966M

Total Interest-bearing Liability = 60.359M

COD = 6.57%

WEIGHTAGE

BYND has 1 billion worth of convertible bonds at conversion price of $206 per share, so it’s OTM.

Total liability = 1093.05M

Share price (1M Average) = $10.185

Shares O/S = 64094.52M

Market Value Equity = 737727.91M

%Equity = 99.8%

%Liability = 0.02%

Marginal Tax Rate = 21%

WACC = 13.71%

EFFICIENT WACC

The elevated WACC that BYND faces is only because it is a new company with an unproven business model and not yet enjoying the full extent of economies of scale. So, I’ve looked at the averages for the agriculture industry and assumed that BYND will tend towards these numbers as the business gets more efficient, COD remains constant.

Average Unlevered Beta = 0.91

Average D/E ratio = 33.87%

Average Levered Beta = 1.15

Average COE = 9.40%

Average WACC = 8.33%

R&D:

R&D

Historical data has to be reconciled as management treats R&D expenditure as an operating cost. This is inaccurate as R&D provides value for more than a year, so it should be capitalized. Assume R&D expenditure counted from 2017 onwards and it takes 6 years to develop a product. (SOURCE)

CONCLUSION:

I value BYND at $17.10 for my base case. BYND has a hidden pocket of value that most investors do not consider, their NOL carryforward. Even when we take a conservative view and only consider those that do not expire. Their NOL carryforward is still 738M. I believe that as countries turn to be more environmentally conscious BYND will be the first in line to profit. Even if environmental concern is out of the picture, plant protein has a huge potential to be significantly cheaper and even healthier than animal protein. The less privileged will be able to benefit from this, not having to pick between health and hunger.

DCF (BASE) : [SOURCE]

DCF (WORST) : [SOURCE]

DCF (BEST) : [SOURCE]

Revenue Model : [SOURCE]

Cost Model : [SOURCE]

QUESTIONS & POTENTIAL ERRORS:

1) How can BYND penetrate into Asia if most products are Westernized e.g., Burger patty?

2) BYND may not be able to achieve EOS as “The common plants used for protein in alternative meats, such as peas, are only being produced in a few countries” (SOURCE)

3) Given that I used book yield as a last resort, it may not necessarily give the most accurate representation for Cost of Debt.

4) Management may or may not tend towards the efficient wacc I’ve defined in my DCF for reasons such as they may not be able to cheaply do it or may not see a need to do so in general.