Terragen finds ground on ASX with biological ag solutions

From fortified foods to increased demand for organic products, consumers are increasingly concerned about gut health and the impacts of pesticides on the soil where crops are grown.

The organic movement has even been positive for conventional farmers who have incorporated organic and biological techniques into their growing methods, controlling some pests and weeds naturally thus reducing the environmental impact.

Although it hasn't really entered the parlance of most sustainability-conscious shoppers, soil health lies at the core of protecting the future of food security and our environment.

Innovation has been widespread to tackle these agricultural challenges, and the sector's attractiveness came to the fore when Germany's Bayer CropScience bought Californian biological pest management solutions company AgraQuest for US$425 million in 2012.

Today the ASX now has its own listed company that is tackling these kinds of issues, albeit from a different angle and with financials still very much in small cap territory.

Coolum Beach, Queensland-based Terragen (ASX: TGH) has raised $20 million in an IPO to further commercialise its range of biological products that help reduce farmers' reliance on chemical-based fertilisers, pesticides and antibiotics.

Terragen's range of products use live microbes to address soil health and boost the growth, quality and resilience of farm animals.

"As far as we know, Terragen is the first publicly listed company developing biological products for both soil and animal health applications in the world and one of very few developing products in either category," says chief executive officer Justus Homburg (pictured), who previously headed up Vital Foods Processors and Progen Pharmaceuticals.

Terragen shares listed at an offer price of 21.5 cents each, implying a market capitalisation of $46.7 million and an enterprise value of $25.1 million. Shares opened at 26 cents and were trading at 21 cents each at noon.

Washington H Soul Pattison (ASX: SOL), Thorney Technologies (ASX: TEK), Monadelphous Group (ASX: MND) chairman John Rubino and US-based Dempsey Capital are among the early investors to take an interest in the company.

"The IPO was well supported, met all our expectations and provided a good investor base which includes several institutions."

The funds raised will be used to commercialise Terragen's 'Great Land' and 'Mylo' brands in Australia and New Zealand; to further develop and subsequently market Mylo, 'Lactolin' and 'Halo products in the US and Europe; and to continue to improve the production efficiency and formulation of Terragen products.

Mylo, which is free of antibiotics and hormones, is a microbial feed supplement for livestock that helps build the activity of beneficial microbes in the gastrointestinal tract of livestock. Meanwhile, Great Land is a patented liquid biological soil conditioner containing live, naturally occurring bacterial species from the Lactobacillus and Acetobacter genera.

A Great Land avocado trial last year in Bundaberg led to a 10 per cent yield benefit, boosting the net incremental revenue per hectare by $6,250.

"We produce biological products that form a base for driving agricultural sustainability on farms using conventional farming practices as well as organic and chemical-free farms. Terragen is well placed to unlock a new future of farming," says Homburg.

"We believe that our biological products can help generate better outcomes for farmers with their crops and livestock and provide better environmental outcomes that will be more acceptable to consumers," adds chairman Sam Brougham.

Terragen's revenue increased by almost half between FY17 and FY19 to reach almost $1 million, while its loss after tax was reduced by 6 per cent to $3.2 million.