Oatly Group AB (OTLY)

[midastouch017]

Is Oatly Stock A Good Long-Term Investment?

Jun. 24, 2021 8:30 AM ETOatly Group AB (OTLY)BYND

Summary
Oatly Group produces a plant-based dairy alternative with its market-leading oatmilk.
The company is generating strong sales momentum across all regions with the recent IPO set to fund a global expansion strategy.
While the stock appears pricey, we believe a premium valuation is justified considering the positive long-term outlook and significant growth opportunity.

Oatly Group AB (OTLY) is a consumer staples company focused on plant-based food and beverages as an alternative to dairy products. The company is recognized as the creator of the "oatmilk" category with a non-dairy portfolio that includes everything from milk, ice cream, yogurt, cooking creams, spreads, and to-go drinks all based on the same proprietary process. Beyond an aspect of environmentalism and demand for vegan-type nutritional options, the company gets high marks from customers simply because the products taste good. Coming off the recent IPO in May where shares surged by 35% on the debut, Oatly is benefiting from solid growth momentum fueled by an ongoing global expansion strategy. We are bullish on OTLY which deserves a premium valuation supported by a positive long-term outlook.

What Does OTLY Make?
Oatly was originally founded in Sweden in the 1990s by a team of scientists researching lactose intolerance considering an estimated two-thirds of the global population cannot process cow’s milk effectively. A formula was invented which utilizes enzymes to break down grain oats into a nutritious substitute that mimics the texture and experience of cow dairy.

The other part of the story is a vision towards global food sustainability and addressing climate impact with Oatly noting that the production of a liter of its product represents around 80% less greenhouse gas emissions, 79% less land usage, and 60% less energy consumption versus a similar serving of cow's milk. This is important as the messaging connects with consumers beyond the demand from the lactose-intolerant or vegan population. Celebrities including Oprah Winfrey and Jay-Z are recognized as pre-IPO investors seemingly buying into the global potential of plant-based diets.

The company has evolved in the past three decades expanding across Europe including a more recent entry into the United States in 2017. Oatly is now sold in over 20 countries, 60,000 retail channels, and 32,200 coffee shops worldwide including partnerships with franchises like Starbucks Inc (SBUX) which serve Oatly as an option in coffee beverages. Sales by Oatly have climbed at an 86% compound annual rate since 2018 including strong momentum in the Asia and Americas region.

There are several growth drivers at play here. In recent years, the oats category has been capturing market share against other dairy alternatives like soymilk and almond milk variations. Part of that dynamic is some nutritional advantages and greater supply chain flexibility with oats. Almond-based milk alternative is seen as problematic as many lactose-intolerant consumers also have tree nut allergies opening space for an alternative.

In countries like Germany and the United Kingdom, the market share of oats within the plant-based category has surpassed other dairy alternatives. This is particularly encouraging for the company's outlook in the U.S. where oats currently represent only 14% of total plant-based milk retail sales but increasingly chipping away at almond milk's 65% market share lead. While Oatly's share within this figure is currently only 4%, the company generated 182% growth in the U.S. in 2020 compared to 20% of the broader dairy-alternative market.

Oatly market surveys suggest that 60-70% of plant-based dairy alternative consumers across various regions made their first purchase within the last 2-years. This represents a new cohort of customers that can potentially drive a lifetime of recurring sales as part of the bullish thesis for the company. A case can be made that many more first-time buyers will emerge going forward as availability becomes more widespread.

In terms of the addressable market, from $592 billion annual global dairy retail sales, plant-based alternatives still only represent around 3% while the growth has accelerated. The potential that the figure doubles from here highlight the significant runway for Oatly to capture an increasing slice of a growing pie.

OTLY Financials Recap
Oatly Group began trading on May 14th with shares pricing in at $17 raising the company approximately $1.4 billion in cash. At the current share price of $26 per share, the market value of OTLY is currently at $15.6 billion. The company last released data for Q1 with revenues reaching $140 million, up 66% year over year. Asia was the growth leader with sales of $24.9 million, up 415% y/y and now representing about 18% of the total business. The European market where Oatly is more established, representing 58% of total sales, saw revenue up a still impressive 38% in Q1. In the Americas region, growth climbed 65% y/y.

The strategy thus far has been to prioritize growth over profitability. That means a significant effort towards investments to expand capacity along with the necessary logistical operations. There is an expectation for negative earnings for the foreseeable future. Nevertheless, the gross profit was up 54% y/y even as the gross margin declined by 250 basis points to 29.9%. This reflects both the changing geographic and product shift as it expands into new markets.

The proceeds raised from the IPO are meant to support investments towards new manufacturing facilities to increase production. Currently, 52% of total volumes are based on co-packaging arrangements with supply chain partners which have been critical to the quick growth but add to costs. In contrast, only 10-20% of total volumes are produced by end-to-end self-manufacturing at 3 company-owned facilities. The plan is to increase that towards 50-60% long-term with 9 manufacturing sites by 2023 which will also support higher margins and earnings.

Oatly oatmilk production capacity is expected to ramp up by more than 368% from 299 million liters in 2020 to 1,400 million liters by 2023. While the company has not issued financial targets, there is some visibility for sales to climb over the next two years in line with the higher capacity.

Is Oatly Stock Overvalued?
Putting the numbers together, the annualized rate of Q1 revenues at $560 million against the current market cap of $15.6 billion implies a price to sales multiple of 28x. By any objective measure, this is a pricey valuation for any company with a type of growth premium more typically found in biotech or disruptive internet stocks.

Still, if we assume that sales will climb in line with the production capacity of oatmilk from the new facilities, we estimate Oatly could be generating annualized quarterly revenue above $2.6 billion by the end of 2023 depending on the timing of the manufacturing ramp-up. Here, a forward price to sales multiple closer to 6x by 2024 begins to appear more reasonable by our estimate.

Our back-of-the-envelope type of revenue projection corresponds to the current market consensus which appears based on the company's guidance for production capacity. The market is forecasting revenue to reach $682 million this year and climb an average of 50% per year through 2025. The market estimates OTLY will turn a profit by 2024 as it begins to benefit from its scale and improved margins.

So to answer the question, is OTLY stock overvalued? Yes, as we believe the valuation is at least fair considering the significant opportunity and underlying sales trends. The reality is that there are few companies in the market with this type of growth outlook backed by a hot product and brand momentum. By this measure, we believe OTLY deserves its high growth premium for one of the most exciting stocks within packaged foods industry.

Beyond plant-based dairy alternatives, we can place OTLY into a group of other healthy foods and environmentally-conscious consumer product companies. There is Beyond Meat Inc. (BYND), Honest Company (HNST), Laird Superfood Inc. (LSF) among several other small-caps. While the high-level theme of generally increasing demand for these types of products is a segment-wide tailwind, it's difficult to make a direct comparison or a relative valuation analysis considering each company is in a different growth phase and product category. Still, BYND trading at a price to sales multiple of 22x gives some precedence to OTLY trading at a similar level. We believe OTLY is a stronger company than BYND with a more positive brand momentum.

The attraction of OTLY in our opinion is the differentiation of the oatmilk product compared to dairy alternatives like soy and almond. While other companies can attempt to compete with Oatly with a different brand of oatmilk, we believe Oatly gets a first-mover advantage supporting a brand premium. In our view, the market is large enough for several alternatives. The partnership with Starbucks this year in the United States is a major development in our opinion as it serves to both expand distribution while also raising awareness for new customers. Potentially millions of customers choosing OTLY in their Starbucks coffee beverages can convert into at-home purchases further fueling growth. There is a snowball effect that can add to the operating trends going forward as a worldwide theme.

Is Oatly Stock A Good Buy?
Acknowledging what is a pricey valuation for shares of OTLY based on 2021 financials, we have every reason to believe the growth trajectory is sustainable and confident in management's expansion strategy will drive towards profitability as the company leverages its scale.

The bullish case for Oatly Group is that the oatmilk product can surpass the popularity of soymilk and almond milk in the United States and other regions, following the trends in Europe, with an increasing share of retail sales overall. Oatly is like to also capture new consumers buying into the plant-based category for the first time. The timetable to ramp up manufacturing capacity provides a strong runway for increasing sales which provides room for the company to grow into and justify its valuation. The strong operating trends and positive sentiment towards the outlook should support momentum for the stock.

We rate shares of OTLY as a buy with a price target of $33 for the year ahead implying a forward price to sales multiple of 10x based on the current 2023 revenue consensus which is the year all 9 manufacturing facilities will be online. Longer-term, the stock can climb higher as the capacity targets are reached and our take is that the OTLY could even appear cheap by next year when the company crosses over the $1 billion in annualized revenue milestone amid the ongoing level of growth. The upside we see from the current consensus estimates is the potential that new products being introduced along with other major corporate partnerships creating new sales channels.

While a reporting date has not yet been confirmed, Oatly's Q2 earnings as the first for the company since the IPO will be an important chance for management to set near-term financial targets while updating on current operating conditions. Weaker than expected results over the coming quarters is the main risk to consider as it would force a reassessment of the long-term earnings outlook. The lack of profitability in the context of the current valuation places OTLY into a more high-risk and speculative category with shares exposed to potential wide swings of volatility. Interested investors should only consider a small position with a larger diversified portfolio. Tactically, allocating a trade over weeks and months can make sense to secure a lower cost basis on any weakness.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[midastouch017]

Oatly catches a wave of bull ratings after quiet period ends
Jun. 14, 2021 7:39 AM ETOatly Group AB (OTLY)
By: Clark Schultz, SA News Editor

Oat Milk Giant Oatly Makes Public Debut On NASDAQ

Oatly Group (NASDAQ:OTLY) is on watch as the quiet period on the stok expires.

Bullish ratings on Oatly are in this morning from Truist Securities (Buy, $35 price target), Credit Suisse (Outperform, $30 PT), William Blair (Outperform), Barclays (Outperform, $34 PT), Jefferies (Buy, $34 PT), Piper Sandler (Overweight) and Guggenheim Partners (Buy, $32). Analysts are pointing to Oatly's powerful branding and international upside.
Firms with more cautious initial stances on Oatly include Oppenheimer (Market Perform), JPMorgan (Neutral, $24 PT) and Morgan Stanley (Equal-weight, $29 PT). Some valuation concerns are beign cited.
Oatly is on Seeking Alpha's Catalyst Watch for the week.

[OTC_Buyer]

Starbucks short on Oatmilk supply … supply vs demand

[midastouch017]

Oatly partners with NYC frozen yogurt chain for plant-based flavors

Published: June 7, 2021 at 11:56 a.m. ET

https://www.marketwatch.com/story/oatly-partners-with-nyc-frozen-yogurt-chain-for-plant-based-flavors-2021-06-07?siteid=yhoof2

[kenjiroo]

buying at these levels ... this stock going to be worth $50 in no time

[ClayTrader]

* * $OTLY Video Chart 05-21-2021 * *

Link to Video - click here to watch the technical chart video

[davidsson10]

https://seekingalpha.com/article/4425829-oatly-begins-u-s-ipo-rollout

[crudeoil24]

Oatly Group, when it lists its shares Thursday, may hold the title as the biggest plant-based food company IPO this year.

It will follow other plant-based companies that have had successful market debuts in recent years, most notably Beyond Meat. Yet Oatly is also the only plant-based food company to go public so far this year.

Known for its oat milk that can be used in coffee and cereals, Oatly is scheduled to price its initial public offering later Wednesday. The Swedish company is offering about 84.4 million American depositary shares at $15 to $17 each. Each ADS represents one ordinary share.

Morgan Stanley, J.P. Morgan, and Credit Suisse are the lead underwriters on the deal.

Beyond Meat (ticker: BYND), which provides a line of plant-based meats, set the benchmark when it went public in May 2019. Shares of Beyond soared 163% from its $25 offer price during its debut, closing at $65.75. The stock traded Thursday at $103.08, more than quadruple its IPO price.

More recently, Laird SuperFood (LSF) made its debut in September; the stock nearly doubled from its $22 IPO price, closing its first day at $40.80. Shares are trading at $31.66. Vital Farms (VITL) also listed in July with shares rising 60% from its $22 offer price to end at $35.26. The stock traded at $20.46, below its IPO price.

Oatly -- which calls itself the original oat drink company -- turns liquid oats into vegan food and drinks, including milk, yogurts, lattes, and spreadable cheeses. Its products are available in more than 50,000 locations in 20 countries.

The company is not profitable. Losses widened to $60.4 million in 2020 from $35.6 million in losses in 2019. Revenue more than doubled, to nearly $421.4 million. It had 792 employees in 2020.

Oatly has solid fundamentals; sales jumped 107% in 2020 and 66% in the first quarter, said Matt Kennedy, senior IPO market strategist at Renaissance Capital. Interest rates and inflation fears, however, are hampering growth stocks, he noted.

"It's a very challenging time for every company, especially growth companies, which are the bread and butter of the IPO market," Kennedy said.

Companies comparable to Oatly have also not traded well recently. Shares of Beyond Meat have dropped 35% in the last three months, including 24% in the last month, Kennedy said.

Oatly is a much bigger deal than Beyond Meat, which raised $241 million with its IPO nearly two years ago. Oatly could raise as much as $1.4 billion, while its market cap could reach $10 billion.

Recent IPOs have also not performed that well. Squarespace (SQSP), the web hosting firm, made its debut Wednesday and shares closed at $43.31,13% below its $50 reference price. Other recent offerings have dropped below their offer prices in their debuts, including Waterdrop (WDH), Talaris Therapeutics (TALS), and Vaccitech (VACC).

"When investors are not making money on recent IPOs, they're more cautious about future IPOs," Kennedy said.

The Renaissance IPO exchange-traded fund (IPO), which tracks companies for two years after they go public, is also down 25% from its peak, Kennedy said.

Others are more positive about Oatly's prospects. Consumption of alternative plant-based dairy is rising, said Richard Laver, founder of Kate Farms, a provider of plant-based liquid meals. A majority of Americans have at least one plant-based milk alternative in their fridge, he said. Laver thinks alternative plant-based dairy is performing better than plant-based meat.

"Oatly is proof of this wide demand for plant-based dairy alternatives," Laver said. "Oatly's IPO will blow plant-based meat alternatives out of the water."

Oatly has some well-known backers. In July, the company raised a $200 million round led by Blackstone Group (BX). Also joining in the round were investors including Winfrey, rapper Jay-Z's entertainment company Roc Nation, Natalie Portman, former Starbucks Chairman and CEO Howard Schultz, Orkila Capital, and Rabo Corporate Investments, the investment arm of Rabobank. Blackstone will own nearly 7% of Oatly after the IPO.

Oatly likely won't be the last plant-based food company to come to market. Impossible Foods is reportedly preparing to go public, either through an IPO or a merger with a special purpose acquisition company, or SPAC. A listing could value the plant-based burger maker at $10 billion, Reuters said.

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(END) Dow Jones Newswires

May 19, 2021 17:54 ET (21:54 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

[crudeoil24]

The Oatly IPO is expected to price late Wednesday ahead of the vegan dairy company's trading debut, as alternative milk products, once banished to health food stores, go mainstream.

The Swedish company is offering 84.4 million American depositary shares for $15-$17 a piece, raising about $1.35 billion in proceeds. If the Oatly IPO prices at the high end, the company's valuation would top $10 billion.

Starting Thursday, Oatly stock will trade on the Nasdaq under the ticker "OTLY."

Morgan Stanley (MS), JPMorgan Chase (JPM) and Credit Suisse (CS) are the lead underwriters of the Oatly IPO.

Oatly disclosed 2020 financials that showed sales jumped 106% to $421.4 million, while losses widened to $60.4 million from $35.6 million in 2019.