Evogene - A Company With Valuable Assets Trading At Zero Enterprise Value

By Kate Hayden

Thursday, June 22, 2023 9:17 AM EST

Introduction

Evogene is a Nasdaq and Tel Aviv listed company under the ticker EVGN. The company is both an agri-tech (agricultural technology) and bio-tech company with a computational predictive biological platform technology, which supports three AI tech-engines (GeneRator AI, ChemPass AI & MicroBoost AI). The technology is leveraged to five relatively early-stage subsidiaries: three of which have reached the commercialization phase and have sales.

There have been a number of articles on TalkMarkets describing the overall company and its structure, (see here and here), as well as some excellently detailed analysis and overview on Evogene and each of its subsidiaries by investor, Stephen Goldman on Seeking Alpha. This article will focus primarily on the valuation of the business, without going into detail into what those subsidiaries actually do.

Trading at around cash for several months

The company has a market cap of around $30 million (at a share price of $0.72), and has been trading at around those same levels since mid 2022, following a very sharp 90%+ fall from its peak of around $9.50 in February 2021. At the same time, the company had $29 million in consolidated cash as of Q1-end*.

*As a side note, we note this is today a conservative estimate of cash, since following Q1, Evogene received a $10 million investment in Biomica; an EU grant of over $1 million to develop drought resistant crops; revenues from Lavie Bio’s seed treatment which peaks in spring-time, and is set to receive a further $9 million in the near-term from an oil giant for castor seeds for biofuel, less ongoing cash burn.

The company was a key holding in Cathie Wood’s ARK Genomic Revolution ETF fund (ARKG) back in 2021. However, as ARK’s funds grew significantly, ARK exited most of their smaller holdings including Evogene, and combined with the 2021-2022 market crash, the company has since taken the hit to its share price, despite prospects significantly improving versus its position in 2021-2022.

Today, with effectively zero (or lower) enterprise value, when purchasing the shares, investors today are basically buying that same amount in cash, getting all the AI technology assets contained within the company and the value in the subsidiaries for free.

This is extremely pessimistic from the markets perspective.

Valuation of the subsidiaries

For one, the subsidiaries do have real value, ascribed by external investment from professional funds. Two of the subsidiaries have seen recent venture capital (VC) investment from serious institutions, providing external valuation.

Biomica (Evogene’s early stage bio-tech company focused on the human microbiome) of which 76% is now held by Evogene, saw an investment of $10 million, at a valuation of $50 million by Chinese VC, Shanghai Healthcare Capital, implying a value of $38 million to Evogene. This itself is above the market valuation of Evogene.
Lavie Bio of which Evogene currently owns 70% and Corteva (NYSE: CTVA) owns the balance, is an early-stage agri-tech company which already has growing sales. They closed a SAFE (simple agreement for future equity) investment round at the end of last year bringing in $10 million from Israel Chemicals (NYSE: ICL). While SAFE investments mean valuation, and ownership adjustments, are not fixed until a later date, we do not believe the future round will be at a valuation below what Corteva paid in 2019 when the company was pre-sales: $27 million investment for 30%, implying a valuation of $90 million. Assuming ICL invests $10 million at a $90 million valuation, representing 11% ownership for ICL, Evogene’s ownership would drop to 63% of a $90 million company, whose value to Evogene would be $57 million - almost 2X Evogene’s valuation.
Canonic, a medical cannabis company of which Evogene holds 100%, has small but growing sales in Israel and has signed various royalty license agreements for its genetic varieties. It is noted that these license agreements are basically costless to Evogene and offer Canonic 100% gross margin. Given the weakness in the cannabis space globally, the company has stated they are looking for strategic alternatives for Canonic. While we can assume the valuation of the company is not significant given the unattractive cannabis market, given existing and growing sales plus its ability to gain royalties at almost 100% margin by licensing out existing IP - its genetic varieties - and its initial success in doing so, so far, the value is clearly above zero.
AgPlenus, developing crop protection products, of which Evogene owns 98%, is also at an early stage. In the conference call, the Evogene CEO stated that, “Major ag-chemical companies such as BASF, Bayer, Corteva, and Syngenta dominate today's crop protection industry. Still, they look to smaller ag-tech companies like AgPlenus to develop new minor molecule candidates, and AgPlenus is exploring partnerships with these major industry players.” The company is working with Corteva (also mentioned earlier as an owner and partner in Lavie Bio). The company has a pipeline, has solid partnerships and there is definitely strong potential here. Again the valuation is clearly above and probably well above zero.
Casterra, selling genetically advanced castor seeds for oil production of which Evogene holds 100%, is likely the subsidiary with the highest potential for significant value creation in the short-term. Casterra’s castor seed varieties used for bio-fuel production are designed to maximize water efficiency, provide drought resistance, and enable cultivation on marginal, non-arable land. Casterra offers a sustainable production process for growing biofuels, which oil majors can leverage.

This is why Casterra has attracted the attention of a major oil and gas company, looking to build its expertise in the biofuel sector in Africa. It just announced a significant $9 million initial purchase order for Castor seeds, following an earlier order in January (for an undisclosed amount). $9 million for an oil major, is clearly just a ‘drop in the ocean’ and the future potential is likely in the tens of millions, if not hundreds or more. Beyond that, we think the market itself is very interesting and will grow as the oil companies look to offer more sustainable forms of fuel, which castor grown fuel indeed is.

While Casterra has never raised external capital, it has no external valuation. However, 2023 revenues at Casterra will be relatively high versus all other subsidiaries in Evogene, and likely to further grow significantly in 2024 and 2025. We do not know what the gross margin on Casterra’s seed development is, but the majority of the value is tied up in the IP and genetic makeup of the seeds, and we should assume similar margins to other such biotech products, which would be in the 80-90% range. The operating expense footprint at the subsidiary is low with only a handful of employees, and we would estimate with 2023 revenues of over $9 million, the company is highly profitable.

There are other biofuel companies which we can use as a guide to valuation: according to Lake Street’s research on Evogene, CoverCress was purchased by Bayer and Chevron for over $200 million, and S&W-seeds has a biofuel JV valued at $150 million, investments made at both companies at the pre-revenue stage. We would assume that a revenue generating and profitable biofuel company, with very significant growth potential, should be at least within this range.

To summarize, while the market is valuing Evogene at its cash level at around $30 million, the conservative value of Evogene of its subsidiaries: net cash above $29m; Biomica at $38m; Lavie Bio at $57m; Canonic above $0m; AgPlanus well above $0m, and Casterra at least $100m; yields a value of well above $224 million, or well over $5 per share, versus around $0.73 today, and upside of well above 6X.

Evogene’s technology

And all that does not take into account Evogene’s technology. Evogene is a 20 year old company, and over that time primarily focused on research and development (R&D). In 2022, it spent $21 million in R&D, and extrapolating out to its founding, we can assume that over those two decades, Evogene has likely invested in the region of $400 million into R&D, developing the technology at its subsidiaries and into its own technology.

Evogene itself has a technology platform, which all its subsidiaries can leverage, called the Computational Predictive Biology platform or CPB, which it provides to its subsidiaries to direct and accelerate the discovery and development of their life-science-based products.

It consists of three artificial intelligence engines which use a large amount of either microbial, molecular or genetic data to train and ultimately discover new potential products and applications, called MicroBoost AI, ChemPass AI, and GeneRator AI. More information on these engines can be found within Evogene’s presentations on its investor relations website.

There are no external metrics on which to value Evogene’s technology, but given the significant amount spent over decades, Evogene’s partnerships with leading ag-companies such as Corteva and ICL, and its revenue generating subsidiaries, there is clear value - and probably very significant value - here.

Conclusion

Pessimists might argue that the reason for today’s sub $1 valuation, and trading at or below cash, is the expectation that the company will spend down its money without an exit to boost its capital. Recent news: Casterra’s $9m sale of seeds, $10m investment in Biomica, $10m SAFE investment in Lavie Bio, and ~$1.5m Horizon grant, as well as two revenue generating subsidiaries means that Evogene’s cash is actually increasing, and this risk today, is becoming increasingly remote.

From a sum-of-parts perspective, Evogene is likely worth many multiples of its market valuation today. From a conservative perspective, we calculate it is worth well above $5, without ascribing any value to Evogene’s technology. This represents at least a 6X upside from today’s share price.

When this will eventually come, nobody knows, but the recent news at Casterra represents a very significant catalyst and ultimately value is hard to keep locked up forever.

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