Monday, 28 July 2014

Harvesting A Yield Of Disruptive Technologies



The Howard Group Introduction to 
Clean Seed Capital Group (CSX:TSX-V)

This story is one to which investors can relate and appreciate, as it combines technology with the never ending need to feed a growing number of people. We simply accept as fact that technological advances have propelled dramatic increases in productivity and efficiency while driving down costs in all industries. 

The first records of early farming date back to 10,000 BC.  It is a profession that involves a lot of trial and error, failure and success, and a never ending quest to “find a better way”. 

With so many agri-tech companies promoting the latest technologies to boost yields and promote sustainability of agriculture, how does one leap ahead of the pack? How does a Western Canadian based emerging company compete against the multi-national farm equipment manufacturers? Most certainly, you can’t outspend them to grab market share that they have taken decades to develop. Most certainly, they are going to look at the “start-up” as a minor irritation UNLESS you have something they need to defend their own turf and grow their market share.

In our view, and irrelevant of the industry, a company that is going to attract real interest from the dominant organizations within a sector must have an Intellectual Property (IP) portfolio that holds the promise of creating  “disruptive advancements”. Another aspect to consider is whether or not the IP is of such merit that it has the potential to impede the Research & Development efforts within the conglomerates. Also, a point not to understate is that a major company may be called to action simply because of a fear that a competitor might want the IP portfolio.  

At this juncture we’d like to introduce Clean Seed Capital Group as the newest addition to The Howard Group client portfolio. It is an agri-tech company that has developed “no-till SMART seeding technologies”. It was first brought to our attention by EuroPacific Canada and subsequently by Industrial Alliance.

Over the past nine months we have had a number of meetings, detailed discussions and a considerable exchange of information with members of management.  In our view, Clean Seed’s IP portfolio is the cornerstone of its business.

We don’t see Clean Seed as a sales and revenue growth business “on its own”. We believe the opportunity is through management’s ability to leverage its IP portfolio with a large industry partner. Clean Seed has been designed for a Joint Venture or buy-out.

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We clearly understand that if a JV or buy-out was to occur, how long would it take and how would it be structured? What if Clean Seed had to go at it alone? These are just some of the many questions to which there are no answers, today. 

Anyone showing an interest in Clean Seed will look at what has been accomplished versus risks, such as the company’s financial and human resources, and then assess “what may happen” to ultimately draw their own conclusions on valuation and “potential”.   

The Howard Group made its decision and it is an investor in Clean Seed Capital Group.  

Of monumental importance, especially in an emerging company, are the qualities, commitment and depth of the team. For the purposes of this introduction we cannot get into a detailed discussion regarding every individual. However, we want to point out that President and CEO, Graeme Lempriere is “all in”.

The idea for what eventually became Clean Seed was germinated by his father, Dr. Noel Lempriere, approximately 14 years ago.  After ill health became an unfortunate reality for Dr. Lempriere and new challenges in the capital markets surfaced, his son took over the business, but only after rescuing the assets (IP) with his own cash, seeing the company through a financial drought, and then assuming responsibility for making the dream a reality. 

The Lempriere family has many years and more than $3 million invested in Clean Seed. Graeme has also just become a father for the second time.     

Management and members of the Board of Directors own approximately 37% of the 33.25 million shares outstanding (43.54 million fully diluted). Clean Seed began trading on the TSX Venture Exchange in September, 2011. 

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Clean Seed has been winning awards and accolades at major Canadian agricultural and progress shows for its technological innovation, and is now at the front end of full commercialization. Headquartered in Burnaby, British Columbia, the company, through its proprietary SMART technology, has developed a new class of high-resolution seeding equipment called SMART Seeders.  The CX-6 Smart Seeder is the company’s flagship product and represents a radical advancement in seeding technology, providing farmers with total control to implement precise planting plans.  

Think of two people standing in front of a canvas. One has a roller and one has a delicate paint brush. It’s clear which of the two is going to produce a beautiful portrait. Placing just the right amount of paint in exactly the right spots is critical to creating a masterpiece. This is akin to Clean Seed’s technology, but unlike the artist, the canvas of land will reveal a portrait in an incredibly short period of time.

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Amongst many other features, the technology’s ability to read the “map” of a field leads to micro-management of every acre, where just the right amount of seed, fertilizer and inoculants (promotion of plant health) are modified on a millisecond basis. As the graphic notes, “pinpoint accuracy in every square foot on the field”.

Clean Seed views the Canadian prairie farmer as its primary target market. 14,000 air seeders are currently in use in the Northern Great Plains Area, which is the area between Canada and United States, none of which provide individual point resolution for precision metering.
  • Air seeders are suitable for farms with areas greater than 1,500 acres
    • In 2011 there were approximately 12,500 farms in Saskatchewan greater than 1,600 acres
    • 12,000 farms in Manitoba and Alberta were greater than 1,600 acres
  • Potential for the CX-6 Smart Seeder is approximately 24,500 farms (average drill value: $350K for current air seed models) – potential market size of over $8.5 billion
  • Average equipment turnover period is 5 years = annual potential market of $1.7 billion
(Source: Company Material)

Another reason that attracted us to Clean Seed Capital is management’s ability to raise funds in these challenging market conditions, especially for small/micro cap companies.  Due to the successful showing of its CX-6 Smart Seeder at last month’s (June) Farm Progress Show and a growing mountain of interest in the technology, the company decided to scale back a very recent $0.60 Unit financing  to just $1.5 million from $5 million. This decision was taken as Clean Seed is currently evaluating new synergistic business development opportunities.

Clean Seed also has a very strong rural investment base. The fact is that the people who are using the currently available seeding equipment see the potential of this technology and have invested their own hard earned capital. 

The Howard Group will have much more to say about Clean Seed, the people, the technology, and the path forward when it releases its detailed “Perspective” on the company. 

In closing, Clean Seed Capital is designed for people who appreciate the blue-sky potential of what could be a disruptive technology, while understanding the risk-reward balance that needs to be considered in any potential investment.

Should you wish to receive future commentaries from The Howard Group on CSX, click here to register or send us an e-mail at info@howardgroupinc.com.

Click here to see a video of Clean Seed at the Farm Progress Show last June 2014

To view, Clean Seed Capital’s corporate presentation, click here.


Arial Cobangbang
     Grant Howard