NASDAQ:SDOT
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On January 9, 2024, Sadot Group (NASDAQ:SDOT) announced that it had executed an agreement with two distinguished professionals in the international grain trading business, Flavio de Campos and Paulo de Sa, in order to begin operations and management of a new trading arm called Sadot Brasil Ltda., a wholly owned subsidiary of Sadot LLC.
Sadot Brasil will source and export grains such as soybean, soybean meal, wheat and corn. This expansion has the potential to generate multiple benefits for Sadot LLC as it further expects to substantiate the company’s position as an international agri-foods company operating in many important grain producing geographies in the world.
The company continues to expand its operations in the various verticals of the global food and feed supply chain including farming, sustainability, and the trading and shipping of agri-commodities. The inception of Sadot Brasil Ltda. has the potential to provide growth in the trading verticals, managed by experienced industry professionals.
CEO Michael Roper stated “We believe that the agreement to begin operations of Sadot Brasil Ltda. establishes a strong presence in one of the world’s most important grain producing regions. We believe this will further expand our global presence and allow us to establish a foothold in the critical, growing Brazilian market. We are looking forward to working together with Flavio, Paulo and the rest of the Brazilian team with the common goal of elevating Sadot Group to new and exciting places.”
New Investor Presentation
On December 20, 2023, the company released a new investor presentation in conjunction with its Annual Shareholder Meeting and can be found here.
Growing Demand
Sadot Group sees growing demand for its services as the demand for food and feed is projected to grow significantly through the end of the century. This demand will likely place stress on the global food supply chain. With the pivot to the agri-foods supply chain sector, Sadot Group sees significant growth potential in providing sustainable solutions to address the world’s food security issues.
Feeding the world’s growing population is a significant challenge. The United Nations projects that the global population will grow from today’s 8.1 billion to 9.7 billion by 2050 and 10.1 billion by 2100, with growth concentrated in developing countries.
Urban expansion, global warming, and corrupted farmland contribute to a steady decrease in fertile agricultural land needed to grow grains and legumes which are the building blocks of nutrition and human health. The growing middle class populations in developing countries within Africa and Asia result in more calorie per capita consumption in general and specifically, growth in demand for animal proteins. Both of these factors increase the demand for feed related commodities for animals.
Also, a growing part of the world’s population is in areas that have highly limited agricultural potential and require systems in place to provide a steady in-flow of food products.
Valuation and Estimates
We maintain our current estimates and price target of $3.50 pending release of the company’s 4th quarter and full year 2023 results as well as an updated share count. We expect 2023 consolidated revenue of $737.6 million and GAAP EPS of ($0.14). Our 2024 EPS estimate is $0.22.
Our primary valuation tool utilizes a Discounted Cash Flow process which assumes ongoing high levels of revenue generation from Sadot, albeit lumpy at times. The net income margin for Sadot is expected to expand to 3.0% by 2026 and slowly expand to 4.0% in subsequent years. Our base case assumes steady franchise growth in the Pokemoto expansion as well as reaching fast casual restaurant margins over the long-term.
We believe $3.50 to be a conservative valuation target because if net margins in the Sadot business increase at a faster rate than expected, valuations could exceed $5.00 per share. We believe the majority of the value within our target price is derived from the Sadot subsidiary.
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