Bunge strategy on plant-based protein in early stages

NEW YORK — Credit Suisse on Aug. 12 maintained its “outperform” rating on Bunge Ltd., noting conversations with the St. Louis-based company’s management team exude confidence that favorable oilseeds conditions will extend into 2022 due to record crush volumes, foodservice demand recovery, and the expansion of the renewable diesel industry.

Credit Suisse also noted in its research report that it’s optimistic that Bunge will continue to revise its earnings higher due to an improved operating model and risk management practices. The company at the end of July increased its earnings-per-share guidance for the full year to $8.50, up from $7.50 when reporting first-quarter results and compared with an original forecast of $6 at the end of fiscal 2020.

Bunge stands to benefit from its big customers in the energy industry, most of which are moving forward with expansion projects because they are focused on meeting environmental targets set by state governments, Credit Suisse said.

“Mathematically, we estimate that the industry’s plans for 2.7 billion gallons of new capacity would need to source 33% of total US soybean oil production, even if soybean oil only accounts for 50% of the feedstock,” Credit Suisse said. “To meet this demand, the US would need to curtail vegetable oil exports and increase canola oil imports from Canada. US food producers would need to reformulate their products more toward palm. All of these changes would benefit Bunge’s global footprint.”

One area that Bunge’s strategy is less certain is plant-based protein. According to Credit Suisse, conversations with company management suggest Bunge’s investment approach in the growing category is “scattershot and hard to evaluate.”

“Bunge said it is developing its investment plans for plant-based protein based on what its customers are asking them to do rather than through a major acquisition,” Credit Suisse noted in the report. “This includes a minority investment in Merit Functional Foods in Canada, a soy protein company in China, and the acquisition of a shutdown food ingredient plant in the US with potential for retrofitting.”

John W. Neppl, chief financial officer, also told Credit Suisse that management wanted to make an investment at two plants in Incoupa, Brazil, but legal issues have prevented them from fully acquiring the facilities.

Bunge recently reported net income of $362 million, or $2.37 per share on the common stock, in the second quarter ended June 30, which was down 30% from $516 million, or $3.47 per share, in the previous year’s second quarter. The results included a negative mark-to-market timing difference of 24¢ per share, Mr. Neppl said. Adjusted earnings were $2.61 per share, which compared to $1.88 per share in the previous year’s second quarter. Second-quarter net sales increased 63% to $15.39 billion from $9.46 billion.