Benson Hill: Innovating in food through data science and machine learning (NYSE: BHIL)
Benson Hill (NYSE: BHIL) is currently undervalued. The multi-billion dollar food industry is changing as you read this. In the next 10 years, your diet will never be the same. As with any major development in human history, the future belongs to those who can recognize an attractive opportunity. BHIL presents an opportunity to ride the age-old trend in the food industry.
Benson Hill is an agribusiness company that is revolutionizing the food industry. By combining data science and machine learning with biology and genetics, they were able to unlock nature’s genetic codes in crops through the food innovation engine CropOs. Benson Hill is changing the world through its two business units: The Ingredients Segments and The Fresh Segment. The Ingredients segment focuses on trading in the following areas: specialty soybean vegetables, aquaculture and animal feed, and ultra-high protein [UHP] Ingredients. In the fresh segment, a subsidiary, J&J Produce Inc., grows, packages and sells fresh produce to retail and foodservice customers.
Age-old trend in the food industry
There are eight billion mouths on the planet to feed. That’s eight billion directions food should go. The current supply chain was supposed to guarantee everyone their share of food. However, that didn’t really work out well given that around 829 million people worldwide go to bed hungry every night.
Benson Hill has been able to design better foods and ingredients before they even leave the lab, thanks to changing consumer tastes and advanced technologies such as cloud computing, artificial intelligence and genetic sequencing. They discovered that by identifying and modifying the genetic sequences of plants, foods can increase in quantity and quality. Benson Hill has found a long-term solution to growing food shortages that doesn’t involve rationing or mass-producing poor quality produce.
Moreover, at no other time in history have consumers been so focused on a healthier lifestyle, especially when it comes to dietary intake. Obesity, cancer and their band of merry companions have convinced mankind of the need for a better food system. Food experts tell us that the healthiest types of food are those that have undergone the least processing. In fact, the more a food ingredient undergoes transformation, the more nutrients it loses along the way. Benson Hill has found a way to minimize the level of food processing while improving taste and durability. This is where their amazing technology comes in.
Proprietary technology and process reduce operating costs
With a vast database of genotypic, phenotypic and other complex data on their crops, consumer feedback on ingredients, and environmental data, Benson Hill is armed with everything he needs to overhaul the food industry. There is also a machine learning capability that uses the data library items in the first stage of the CropOs platform. This robust data collection system and advanced simulation allow them to create more efficient products. Their ability to manage data gives them a leg up on the competition and enables them to respond more quickly to customer needs and farmer demands.
In the first stage, which is the design phase, Benson Hill uses a wide range of simulations using the data available in the data library. Billions of data points in millions of configurations are analyzed to identify the best configurations. This avoids waste and allows large quantities of products.
It is from this stage that they begin to build. At the construction stage, crop genomes are modified. Lost or mutated genetic variation, which is important to the process, can be recovered through their knowledge of plant genes. By using the Crop Accelerator facility, scientists can speed up the process. This facility also accelerated testing and helped them find new ways to combine products.
After the creation of a marketable product, the process enters the testing phase, where it is evaluated in a certain test system. This test system includes both internal and third-party sites, with hundreds of such test sites. Most companies don’t bother to test after the initial product has been created. This is what sets Benson Hill apart. The extent to which they would go simply to ensure the safety and satisfaction of their consumers is unparalleled.
ESG-oriented strategies in place
Benson Hill’s ESG strategy is based on creating ingredients and products that meet the nutritional needs of consumers. The tools and technology used in this process are all top notch. They believe in helping manufacturers increase demand and reduce environmental impacts. The goal is to make herbal products available and affordable to everyone. They have cultivated a traceability system that will allow them to solicit and leverage the opinions of third-party users. Benson Hill’s emphasis on ESG, among his long line of other qualities, is likely to attract investors and funds to the stock.
Based on my investment thesis, I expect BHIL to continue to innovate and eventually achieve large-scale commercialization of its product, given its promising proprietary technology and process.
In SPAC presentation, management pointed to long-term revenue target of $1.4 billion and EBITDA of $556 million for FY27. However, performance has been better than expected recently . Therefore, I expect BHIL to be able to meet its targets one year ahead of schedule (in FY26).
Given the scarcity of profitable comparables in the market, the question is what multiple should BHIL be trading at in FY26. In order to derive a figure, I used a very simple method, namely assuming that BHIL would have the same revenue multiple as Beyond Meat (BYND) today, which translates to an EBITDA of 7.4 NTM. BHIL’s valuation has been significantly reduced from 5x forward earnings to 1.2x forward earnings. Thus, in a bullish market environment, investors may benefit from an upward revaluation.
Based on the above assumptions and an NTM EBITDA of 7.4x, I found an intrinsic value of $20. That’s 7x the current stock price of $2.52.
An attractive market attracts many competitors
First, the vegetable products market is a battlefield in its own right. Benson Hill faces fierce competition from direct and indirect sources. If at any time they fail to innovate and improve, they could fall behind in the race.
Predicting food trends isn’t easy
You also have to recognize that predicting food trends is not something you can do with your eyes closed while sipping cappuccinos on a steamy sand beach. It’s not easy to catch up with the ever-changing tastes of customers.
Large-scale commercialization may not happen as quickly as expected
For BHIL to be able to sell its products, it must be able to mass-produce high-quality items at low prices and accurately forecast the resulting demand. However, none of these things are guaranteed.
BHIL is undervalued at its current price as of this writing. The true value slowly dawns on you when you consider the high payout that comes with this investment if it works out. You can be part of this revolution as we move towards feeding the world. And what better way to serve people when you can make money doing it?
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