The pet industry was worth approximately $50.8 billion in the United States in 2011, according to the American Pet Products Association (APPA), with approximately 62% of U.S. households owning a total of 86 million cats and 78 million dogs. And, with pet ownership up 2.1% in 2012, reaching a new all-time high, these figures are only going to continue rising. In fact, many consider it to be a relatively recession proof industry.
Large companies like PetSmart Inc. (PETM) have been clear beneficiaries of these trends, with third quarter 2012 revenues up 8.8%, same-store sales up 6.5%, and earnings per share up 50% thanks to a 30 basis point improvement in merchandise margins. As North America’s leading pet retailer, these metrics suggest a lot of strength in the sector.
Finding Hidden Value in the Space
Investors looking for hidden value in the space should consider some of the attendees at the Global Pet Expo, which took place between February 20th and February 22nd this year in Orlando, Florida. Presented by the APPA and PIDA, the 2012 expo featured 835 exhibitors, 2,487 booths and more than 3,000 new product launches geared towards the 5,011 pet product buyers in attendance.
While some presenters like 3M Corporation (NYSE:MMM) and Procter & Gamble Inc. (NYSE:PG) are diversified, others like OurPet’s Corporation (OTC Pink: OPCO) and BioLargo Inc. (BLGO) represent unique niche opportunities for investors to consider, particularly with their recent exposure to retailers, distributors, buyers and other qualified professionals.
Given the past few years of tough economic times, while big companies seemed to sit on cash rather than take any risk associated with introducing new products, it seems like the pet industry is ripe for innovation and nimble companies, like BioLargo, may just find themselves in the right spot at the right time.
Nature’s Best Solution® Product Family
BioLargo Inc. (BLGO), a company focused on leveraging Nature’s Best Solution®, iodine, to solve some of the world’s most important problems, is perhaps best known in the pet industry for its Odor-No-More® products, primarily sold into the equine industry. Recently, however, the company has expanded its focus to create its own wholly owned Nature’s Best Solution® product line-up, targeting multiple industries.
Nature’s Best Solution® extends the company’s product line-up to include multiple products in various sizes and SKUs, with an emphasis on feline and animal wound care products, leveraging its award-winning odor elimination technology. By targeting a broader consumer base with best-in-class products, with beautiful packaging and a crisp marketing image, management believes that its products can capture market share from the competition.
Nature’s Best Solution® products include:
Litter Box Deodorizing Concentrate – Environmentally-friendly and non-toxic granulated concentrate to be applied to cat litter, based on its award-winning technology, which eliminates odors and moisture, which management believes out performs any products that are currently on the market today.
Litter Box Odor Eliminator – Safe and effective unscented spray that removes odors without using masking fragrances or toxic ingredients, providing a more effective product than competitors.
Litter Box Wipes – Safe and non-toxic wipes that are perfect for cleaning and deodorizing any pet surface without the use of harsh fragrances or chemicals.
Stain & Odor Eliminator – Treatment in a liquid spray bottle, for eliminating smells and stains on all sorts of surfaces types including carpets, which adds a light fragrance to its patented micronutrient formula that neutralizes and eliminates odors instead of simply masking them.
In addition to its feline product line-up, Nature’s Best Solution® also includes animal Wound and Skin Antimicrobial Hydrogel and Liquid products, which is the company’s first entre into this lucrative and growing market segment that Veterinary Practice News estimates exceed $300 million annually in the USA. Through its subsidiary Odor-No-More, Inc., it also sells another consumer product under the brand DeodorAll® Sport (www.deodorallsport.com) for athletes that was recently featured in USA Hockey Magazine and looks to be gaining traction for its high product performance marks in this sport segment that has a notoriously tough to tackle odor issues.
M&A Potential & Upcoming Inflection Points for BioLargo
Cat litter sales in the United States alone totaled $1.83 billion in 2009, up from $1.51 billion in 2005, according to market research firm Euromonitor. With Nestle’s (OTC Pink: NSRGY) Purina and Clorox’s (NYSE:CLX) Fresh Step and Scoop Away controlling the majority of the market, 31.2% and 27.7% in 2010, respectively, there could be catalysts in the form of M&A.
The timing of events could be helpful to uncover hidden value. First, BioLargo had entered into this market by executing an exclusive license deal with Central Garden & Pet (NASDAQ:CENT) two years ago. The agreement calls for minimum purchase order for Central to retain exclusive rights that came due early this month. Second, Central has had their hands full with ‘transformational change’, as evidenced by its new CEO’s recent quote, “We continue to focus on our transformation to an integrated multi-brand consumer products company. We expect to make significant progress over the next few years as we aggressively build our brands, lower our costs, and drive meaningful revenue and profit growth.”
Thirdly, BioLargo has not made any announcements about Central executing any purchase orders, which would most certainly be material business events requiring disclosure. It is therefore safe to assume that Central has not executed on its minimum purchase obligations. If Central continues to not meet the required minimums, during the next 60 days cure period as described in the agreement, then the exclusive license deal will no longer be in effect.
When you put all the events together, it seems as though BioLargo may be sitting pretty in a win-win situation. If Central decides it wants to hang on to exclusivity and execute on the minimums, BioLargo benefits, and if not, then BioLargo will be free to target numerous other distributors and selling channels for its already developed and positioned products. With the company already expanding its product line and hiring a new marketing firm to sharpen its focus toward sales, early traction from the pet industry could help propel these other products in numerous other end markets.
Remember too how dynamic the animal healthcare industry has become. Just last month Pfizer spun off its animal unit in an IPO worth $2.2 billion giving us a tip off as to how big this market can really become. Best-kept-secret, BioLargo could be onto something special with its advanced wound care products as if finds distribution and sales for its cutting edge products.
How big can BioLargo become? We don’t know for sure, but consider these additional products seem like a natural fit for BioLargo, based on its ability to leverage its underlying technology in soaps, shampoo, detergents, cleaners, skincare, wound care, eye care, anti-fungal and numerous other multi-billion dollar consumer markets. The green cleaners market for consumer products alone exceed $600 million a year in market potential.
Additional Opportunities to Consider
As we’ve seen, BioLargo’s unique technology can also be used to do much more than just control pet odors, which has led to its formal expansion into multiple industries. These markets represent billions of dollars of additional potential for a company that continues to trade with a modest market capitalization given just its near-term opportunities in the pet industry.
Additional opportunities that are a keen focus for BioLargo include:
Advanced Human Wound Care – The Company formed a new subsidiary name Clyra Medical Technologies, Inc., to pursue regulatory approval of its antimicrobial solution in the growing $19 billion advanced wound care industry. And recently, the firm added former Smith & Nephew Wound Management VP Tanya Rhodes to its management team as a senior advisor as it heads into FDA application.
Water Treatment – The company indicates that is evaluating plans to form a water subsidiary in 2013, and has been honored as a founding member of a Canadian government backed research chair at the University of Alberta Department of Engineering, that includes top industry players, to develop sustainable water treatment solutions for the oil sands industry, where BioLargo’s breakthrough technology could be used for environmental remediation. Dr. Vikram Rao, former Chief Technical Officer for Halliburton (NYSE:HAL), is helping the company’s founder and Chief Science Officer, Kenneth Reay Code to spearheading this effort with his 30+ years of experience in the industry to focus in on fracking and other oil and gas related opportunities. Mr. Harry DeLonge, former Pepsi Senior Vice President of Technology and recipient of lifetime achievement awards by the American Water Works Association and International Society of Beverage Technologists joined the team to help focus in on serving the food and beverage industry.
Potential Investment Opportunity
BioLargo Inc. (BLGO) represents a unique potential investment opportunity, with a market capitalization of just $19 million. With near-term potential in the pet and consumer products industry and long-term potential in several other industries, investors have a chance to invest in one company targeting multiple billion dollar markets with a single unique technology.
For more information, see the following resources:
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