Plant Impact's crop protection technology is attracting investors' attention

Food and other agricultural commodities are beginning to hit investors’ radars as food inflation gathers pace around the world. As well as boosting the levels of agricultural prices indices, this inflation should prove beneficial to the share prices of food producing companies as well as those firms whose technology can improve crop yields. One such firm is Plant Impact (LON:PIM).

Alternative Investment Market-quoted Plant Impact is an environmental technology business that is focused on developing what it describes as “low-input products” for sustainable agriculture.

The firm, which is based in Preston in the north-west of England, was founded eight years ago and floated on AIM in October 2006.

The firm sells, and is still developing, a range of products that are designed to significantly improve the health of crops in an environmentally-friendly way. It also owns nine worldwide patents covering six key technologies that underpin its products. These products are divided into two classes: crop nutrition and crop protection.

Plant Impact’s leading product among its crop nutrition offerings is InCa, a calcium delivery system that enables plants to absorb and retain calcium in tissues where it is most needed, especially in parts of the plant that have insufficient calcium levels under normal growth conditions.

Boosting calcium content in key food products leads to stronger cell walls and a healthier plant, helping to reducing the ingress of disease. This means healthier, higher-yielding crops, which in turn means lower operating costs for farmers. And quality produce also means a longer shelf life.

Last year, the company revealed that InCa was its biggest-selling product representing 77% of sales by value during the year to 31 March 2010.

Plant Impact’s other major crop nutrition product is PiNT – a nitrogen product that is eco-friendly and improves plant growth. It comes in two forms: PiNT Calcium and PiNT Potassium.

PiNT Calcium gives the plant the correct balance of nitrogen, so allowing it to maximise its growth potential and optimise produce quality. It encourages strong root growth, bud and fruit development. PiNT Potassium improves growth habit, giving more reproductive growth (flowers, fruit, roots, tubers) and less vegetative growth. It is particularly valuable in crops with a high potassium requirement, such as tomatoes, fruit, vegetables and vegetable oil crops.

The firm has several other crop nutrition products in development, including: Balance, a natural plant extract that increases the efficacy of essential nutrients; Saxon, a fast-acting liquid concentrate fertiliser that accelerates crop growth; Cocoa Stress Tolerance, which enables cocoa plants to withstand disease attack by increasing nutrient levels and plant health; Scope, an anti-stress product that works across a wide range of crops that promotes strong, healthy cell walls and neutralises plant toxins that build up during stress.

But according to Mike Panteli, Plant Impact’s chief financial officer, the firm’s main focus is currently on its InCa and PiNT products that are targeting a combined market worth between US$500m and US$750m in the Northern European and American (both North and South) regions that it sells into.

Meanwhile, Plant Impact is awaiting approval for its crop protection product BugOil. This is a natural insecticide that combats sap-sucking insects in an environmentally-friendly manner. Aimed at controlling harmful pest insects – including whiteflies, aphids, mites and thrips – it has no detrimental effect on higher organisms and leaves no harmful residues.

The firm currently gets no sales income from BugOil, although it did receive a US$500,000 milestone payment from partner Arysta LifeSciences in 2009.

However, Panteli says: “We are expecting BugOil to achieve registration in both the UK and the US within 12 months.”

Panteli has high hopes for BugOil. “This kind of product is highly sought after,” he told Proactive Investors, explaining that – unlike other pesticides – you can even spray it on crops the day before they are harvested and shipped out. And he estimates that the market BugOil is targeted at as worth “anything between US$200m and US$400m”.

Another crop protection product that, like BugOil, is based on natural essential oils is Netamode Control, which is targeted at netamodes (one of the world’s greatest pest problems). Although it is not as close to commercialisation as BugOil, it is under active development and is being supported by a range of partner companies and European Union funding.

Results for the six months to 30 September 2010 showed that turnover from Plant Impact’s sales of crop nutrient products increased to £638,409 from £469,554 in H1 2010. The company’s product margin also increased, from 55.5% to 65.4%, as a result of continuing improvement in product sales in Northern Europe.

The firm’s expenses reduced to £1.58m from £1.64m in H1 2010, but its pre-tax loss of £1.2m was greater than the £889,327 incurred in H1 2010 because of Arysta’s £500,000 BugOil milestone payment during that period. There are further milestone payments, valued at more than £1m, that are to be paid by Arysta to the company when BugOil achieves registration.

Panteli believes that Plant Impact, which had £1.7m cash on its balance sheet at the end of September, has enough funds to see the £12.8m market cap company through to profitability (expected in 2013).

In the latest development, the company announced this morning it is appointing Dr David Jones as chairman to replace Martin Robinson, who is leaving after almost six years in the role.

Jones comes with a wealth of experience of the agricultural technology sector. From 2008 he was chairman of Arysta Life Sciences and has held senior positions at world leader Syngenta and before that Zeneca. Chief executive Peter Blezard commented: "I have known David for some time and appreciate his knowledge of the sector.  With his wealth of business experience in world agriculture, I believe he will provide excellent leadership to the board and management and I look forward to working closely with him as we drive the business forward."

Equity Development – an equity research house – has set a target price of 58p for Plant Impact’s shares, which would represent an upside of some 107% to the firm’s share price - 28p in late morning trade today.

The next few months and years should see investors become more focused on the agricultural sector as food inflation continues to increase. Only a few days ago the UN Food and Agricultural Organization’s Food Price Index, which measures the wholesale price of basic foods within a basket, reached its highest level since records began in 1990. The FAO expects high food prices to persist.

Meanwhile, the recent UK government report – Foresight : The Future of Food and Farming – pointed out that a lack of sustainability in the global food system is already causing significant environmental harm and that there is increased competition for, and scarcity of, inputs into food production.

Firms like Plant Impact that sell products to help meet some of these challenges look well placed to benefit.