Investors wonder whether meat substitute firm is more than a mere flash in the pan

After the NASDAQ stock exchange closes in New York on Thursday, a company called Beyond Meat will report its fourth quarter and full-year 2019 financial results.

Investors wonder whether meat substitute firm is more than a mere flash in the pan

After the NASDAQ stock exchange closes in New York on Thursday, a company called Beyond Meat will report its fourth quarter and full-year 2019 financial results.

The company was the 2019 sensation in the global food industry.

Shares in Beyond Meat were first offered to the public at $25 in May, 2019. The demand was such that the share price hit $65 at the end of the first day of trading, making it one of the best performing first-day share launches.

But the price shot up to $235 four months later. Last week, it was about $120.

Whatever about Beyond Meat’s future, it has already created many millionaires. Private investors have been able to fully realise their profits by selling the shares.

And early $25 investors in the maker of plant-based meat substitutes were able to begin selling their shares for $100 at the end of October.

That was the month Beyond Meat reported its first quarterly profit.

In its first eight months as a public company, it became more valuable than long-established American food companies with billions of dollars of sales.

Last July, the stock market valued Beyond Meat at $13.4bn. It’s worth about $7.3bn now.

People who invested in the share last October have recently been looking at 50% capital gains, if they wanted to cash in.

The company reported a profit of $0.06 per share on revenue of $92m in the third quarter of 2019 (250% up on the previous quarter).

Stock analysts say it probably needs a fourth-quarter revenue of $65.6m to $75.6m to maintain its share price, and must boost 2020 revenue to about $500m.

Rapid year-on-year revenue growth was driven by distribution deals with major restaurant chains.

There are many reasons why the stock market performance of Beyond Meat has shaken up the food world… and the farming world.

Are investors betting billions on the end of beef farming?

Has the American food industry become the new darling of investors with billions to put into start-up firms?

There’s any amount of private money waiting to get in on the ground floor of start-ups ahead of lucrative offering of shares to the public.

Or is the plant-based alternative food sector the latest speculative bubble to follow the Dutch tulip mania, the bull market of the Roaring Twenties, and Japan’s bubble economy of the 1980s?

Supporters of the speculative bubble theory need only point at the world’s rising consumption of real meat.

In Beyond Meat’s home market, the US, consumption of beef and other real meat has risen steadily since 2014.

This suggests the animal protein trend is bigger than the plant-based protein trend.

Despite rising concern about climate change and the environment, global meat consumption increased in the decade to 2017 by an average of 1.9% per year.

The Irish beef industry, looking over its shoulder at Beyond Meat, will be glad to hear that beef sales in its main market, the UK, still look strong, with 86% of households purchasing beef in 2019, compared to 87% in 2018.

Lifestyle choices like vegetarianism and veganism, and their well-financed lobby and activist groups, are not having much effect, certainly not enough to support Beyond Meat’s $13.4bn valuation.

Not all in the food industry are happy with the stratospheric financial performance of the company.

It’s a worry for some that it has blown other lucrative food fads out of the water.

For example, those who had invested to take advantage of the clean label or “natural” consumer trends have been taken by surprise.

Surveys indicate that 91% of US consumers believe food and beverage options with recognisable ingredients are healthier.

They want additives and synthetics removed, and recognisable ingredients used, that are minimally processed. As a result, “clean label” products proliferate in the shops.

Consumers are also interested in products whose supply chains are “clean.”

But that 20-year trend around increased transparency and simplicity in food ingredients seems to have evaporated, with the advent of fake meat.

A lot of processing goes into meat substitutes.

Beyond Meat CEO Ethan Brown speaks before ringing the opening bell at Nasdaq MarketSite, May 2, 2019 in New York City. Picture: Drew Angerer/Getty Images

Beyond Meat CEO Ethan Brown speaks before ringing the opening bell at Nasdaq MarketSite, May 2, 2019 in New York City. Picture: Drew Angerer/Getty Images

Beyond Meat does not use GMO ingredients, and it is soy free and gluten free. Nor does it have heme, the GMO-derived ingredient used by Impossible Foods, the main market rival to Beyond Meat, to add flavour and texture.

Impossible Foods inserts the DNA from soy into yeast and ferments it, to make heme in high volumes.

Beyond Meat says it uses a combination of beet powder and annatto to get the beefy red colour for its burgers.

Other ingredients in the processing mix are protein from peas, mung beans, fava beans, and brown rice; fats from cocoa butter, coconut oil, sunflower oil, and canola oil; minerals such as calcium, iron, sodium chloride and potassium chloride; beet juice and apple extracts for flavours; and carbohydrates from potato starch and methylcellulose (a plant fibre derivative).

Many in the food industry are closely watching for any signs of the plant-based movement running out of hype, which could be followed by a steep sales slump for meat alternatives.

This could happen if previous consumer concerns return about nutritional value, unfamiliar ingredients and processing.

Meanwhile, progress in the scientific understanding of climate change could also undermine one of the foundations under plant-based meat — the notion that veggie burgers are the best route to saving the planet.

Many believe that is ill-informed, that methane from ruminants is not a very significant contributor of greenhouse gas, that rising methane comes instead from shale gas fracking.

But there’s billions in smart money riding on plant-based gaining more and more momentum, and that it will be followed by equal success for laboratory-based, cell-cultured meat and animal products, which some investors in the food industry are banking on.

Japan’s SoftBank Group has led a $161m investment in cell-based meat producer Memphis Meats.

Other Memphis Meats investors include Cargill, one of the world’s biggest grain companies, alongside Bill Gates and Richard Branson.

Bumpy voyage for firm exploring new food industry territories

Ireland’s livestock industry is understandably worried by the rise of plant-based “meat”.

But probably not half as much as the investors who have bet millions on this trend.

Consider, for example, the people who have bet heavy on Beyond Meat.

According to leading business news provider CNBC, if you invested $1,000 in last year’s stock market launch of Beyond Meat, your investment would be worth nearly $4,500 this month — a total return of around 345%.

That’s a 25 times better return than the US stock market in general.

The producer of plant-based meat substitutes became a popular choice for those who aim to avoid eating chicken, beef and pork, in some of America’s biggest fast food chains.

In the first week of January, Beyond Meat’s share price surged 12.5% after its rival, Impossible Foods dropped out of a deal with McDonald’s.

If a partnership between Beyond Meat and McDonald’s expands, the alternative meat company’s shares could rise to new heights.

Beyond Meat shares had soared 163% on its first day of trading.

But a disappointing earnings report three months later sent the share price sliding nearly 15%, in a slump which continued until January 2020, when the launch of the Beyond Sausage at the Dunkin’ chain restaurants boosted the share.

Starbucks announcing plans to sell more plant-based items also helped investors.

There was a setback on January 28, when bankers JPMorgan downgraded Beyond Meat stock, saying its share price recovery was due to unreliable media speculation.

But investors are hanging on in there, betting on forecasts that the alternative meat industry could win 9% of US market share by 2040.

They were encouraged by KFC saying it will offer plant-based “fried chicken” in Tennessee and North Carolina, starting in March.

But the Tim Hortons chain of coffee and doughnut shops removed its limited-edition Beyond Meat products from locations in Ontario and British Columbia.

The Denny’s restaurant chain said in January it will extend availability of the plant-based Beyond Burger from its Los Angeles locations to other restaurants across the US and Canada.

The same day, Beyond Meat’s shares went up 4.4%.

What new shocks for investors could today’s fourth quarter and full-year 2019 financial results for Beyond Meat bring?

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