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Why the Abundant Produce IPO soared 150% on debut

Credit: Keith Weller

Shares in hardy vegetable seed producer Abundant Produce Ltd (ASX: ABT), also known as ABUNDANT FPO (ASX: ABT) by Google, soared 150% from $0.20c to as high as $0.56c on their ASX debut this morning.

Abundant produces seeds that grow under non-ideal conditions such as poor soil, water scarcity, and temperature extremes that can occur outside of modern greenhouses. Abundant claims its products are being developed for the markets of the Middle East and Asia, where crops aren’t grown in high-tech greenhouses like in more modern regions.

Today’s offer was oversubscribed, and investors are clearly hoping that south-east Asian demand will drive sales. The demand echoes that for shares of companies like Bellamy’s Australia Ltd (ASX: BAL) and Blackmores Limited (ASX: BKL), which are building successful businesses in Australia and China.

Although only a small company, potential markets in south-east Asia are massive, and Abundant would need to win a very small market percentage to become successful. The trouble will be selling the seeds at attractive margins for the company, whilst simultaneously offering competitive prices for buyers in impoverished markets. Distribution as well as sales could potentially become an issue.

Let them eat…tomatoes

One of Abundant’s first targets is the tomato market, where India and China together make up almost 40% of global demand for seeds, followed by Turkey with 6%. However, the company is up against stiff competition from established giants like Monsanto and DuPont, which are multi-billion dollar businesses with advanced genomics programs. Investors may be hoping that an eventual takeover of Abundant is forthcoming from the global giants, given that a section of Abundant’s Initial Public Offering (IPO) prospectus went into some depth regarding aggregation in the industry.

Despite today’s rise and the seemingly attractive investment thesis, investors should be cautious that Abundant is a newly-listed company with a limited history of public operations – and, now, a fair amount of hype built into its share price. I would describe it as a high-risk investment today.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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