Doubts grow as faux meat is losing sizzle
A cooling of the U.S. stock market's taste for plant-based meat makers has raised doubts among some investors and analysts about Impossible Foods' plans to achieve a Us$10-billion flotation.
Impossible is seeking to go public through an initial public offering or via a merger with a blank-cheque company within the next 12 months, sources told Reuters this month.
The market value of larger competitor Beyond Meat, however, has sunk from a peak of US$14 billion to closer to US$8.5 billion and is predicted by several brokerages to fall further.
Both firms carry expectations of being big players in a so-called faux meat market, which some predict could be worth US$85 billion a year by 2030 as dietary habits shift.
But with retail sales of some products sliding, four sectoral investors told Reuters that Beyond's 420-per-cent rise in value since listing in September 2019 was now seen as overcooked.
“It's pretty shocking when you see some of these valuations come out,” said Patrick Morris, whose Eat Beyond vehicle has invested in three Canada-listed plantbased ventures.
“The US$10 billion for Impossible Foods, with Beyond Meat at US$8 or US$8.5 billion? The first reaction is that these valuations are coming from outer space,” added Morris, who said he is looking at investing in Impossible if it opens its books.
Some existing investors have told Impossible that it should aim to go public at a valuation below where Beyond is trading, said a person familiar with the discussions told Reuters.
Impossible declined to comment.
While the signs remain positive for plant-based food, COVID-19 has halted restaurant sales, and sector studies suggest that the industry has yet to convincingly win over shoppers.
Nevertheless, both Beyond and Impossible have signed deals with major restaurant and grocery chains and the U.S. industry as a whole grew by 44 per cent last year during the pandemic.
Revenues at Beyond and some other producers are growing, but the rate of volume sales growth of fresh and fully cooked plantbased meat alternatives has been declining steadily at U.S. retail stores since July last year, Nielseniq data shows.
Unit sales growth eased from 32.6 per cent in the July to September period last year to one per cent in January to March quarter of 2021, when compared to the same period a year ago, the data showed.
Beyond's sales overall were still just US$407 million last year, and its stock trades at nearly 21 times sales per share, according to Refinitiv data, versus 1.6 times and 1.9 times for Kellogg Co and Kraft Heinz, which last year had sales of US$13.78 billion and US$26.19 billion respectively.
“Food companies need to trade in a multiple that has some logic to it,” said Christopher Kerr, chief investment officer at Unovis Asset Management, an early investor in Beyond Meat who cashed out and now holds stakes in Oatly and Zero Egg.
“The question is can they get to something that represents market valuation tied to revenues ... right now we're seeing some pretty premium valuations out there,” Kerr added.
One reason for the valuation floated for Impossible is the boom in special-purpose acquisition deals and initial offerings that has seen big jumps for a range of startups at launch.
While Impossible does not publish sales numbers, some industry estimates give it a less-than-four-per-cent share of the U.S. imitation meat industry, compared with Beyond Meat's 25 per cent.
Beyond has signed deals with Mcdonald's, Pepsico and KFC and Taco Bell owner Yum Brands while Impossible last year gave up on Mcdonald's, citing its inability to supply on the required scale.