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Bounding sales growth could soon outstrip cost base says broker

Sales momentum at agrichemical supplier Plant Impact (PIM:AIM) could help the business hit profitability in 2018, according to estimates from broker Peel Hunt.

Results in the year to 31 July 2016 showed the Herfordshire-based business grew its top line 60% to £7.2m.

PLANT IMPACT - Comparison Line Chart (Rebased to first)

As well as offering a rare UK-listed play on agriculture markets, Plant Impact has a number of other attractive features, in our view:

• Growth in a difficult economic environment:

When top-line growth is hard to deliver across the stock market and interest rates are near zero, companies like Plant Impact should be all the more attractive to investors.

Revenue is expected to grow a similar amount in 2017 as it did in 2016, according to estimates by Peel Hunt analyst Charles Hall. Chief executive John Brubaker says Plant Impact has only delivered 40% to 50% of its expected penetration in Brazil through its soya bean enhancement spray Veritas.

On top of that, it plans to launch the product in Argentina and the US which, while incurring more up-front cost, should improve growth prospects further.

In a world where interest rates are zero or even negative in some geographies, investors should arguably be more relaxed about absorbing Plant Impact’s up-front losses – provided these investments deliver expected results.

• High quality technology:

Economic benefits to farmers using Plant Impact’s crop sprays indicate the business has a very strong product. Brubaker says Veritas enables growers to generate $70 to $100 (£57 to £82) of extra revenue per hectare by paying for a product which costs only $20 to use. Customers are currently trialling the product in sections of their farmland and Brubaker is banking on expanded use of the product among new and existing customers as these benefits start to be proved.

As well as Veritas, Plant Impact is working on introducing new products to the soya market and other initiatives in crop enhancement products for cocoa and wheat.

• Strong management:

Chief executive Brubaker, former global head of business development at Arysta LifeScience, an agrochemical life sciences business with revenues in excess of $2bn, says the business is focused on making careful investments.

Where projects can be identified which would increase shareholder value, raising more equity would be considered, Brubaker said. Under current plans, that should not be necessary despite ongoing research and development and sales and marketing costs, Brubaker said. Cash burn in the 12 months to 31 July 2016 was around £2m and Plant Impact has £5.6m in cash.

Peel Hunt estimates Plant Impact will deliver adjusted pre-tax losses of £600,000 in the next financial year, rising to £3.1m profit a year after (EPS: 3.9p). (WC)

Investing in loss-making stocks is a risky pursuit but we like the medium term potential for profit and margins at 50.2p.

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