Estimating Regen Digital’s potential returns

One of the questions that has come up a bit as people consider an investment in Regen Digital is – how can I estimate its earnings potential? This note sets out some logic that can assist in your thinking about this.

Market size

As COP26 has just demonstrated there is a global drive to address the impacts of climate change and biodiversity loss. The size of environmental markets are expected to grow exponentially as a result over the next decade and Australian farmers of all shapes and sizes will be impacted by this oncoming wave of change.

There are two sources of data about the prospective size of the Australian market that are useful in this context:

  1. Carbon Market Institute’s Carbon Farming Industry Roadmap (2021) – that estimates that the carbon market would need to grow to $10-$28bn by 2030 for Australia to reduce its carbon emissions by 45% from 2005 and be on track to meet its net-zero 2050 trajectory.
  2. National Farmers Federation’s “2030 Roadmap – Australian Agriculture’s plan for a $100bn industry” – that estimates that the net benefit from ecosystem services will be 5% of farm revenue, or $5bn by 2030.
Market share

Regen Digital is aiming for the Digital Twin to become the trusted tool that Australian farmers use to prove their green credentials. Given that it leverages the collective power of the Regen Farmers Mutual, it has a unique competitive advantage in creating that trust. Farmers can know that they control their data and how it is monetised.

If there are 90,000 farmers in Australia, the question is what is a reasonable market share for Regen Digital to aspire to? If you believe that all farmers will be held accountable for their farming practices, the opportunity set is large.

Regen Digital’s business model

You’ll find detail on Regen Digital’s business model in the Offer Document (here), so for brevity and simplicity we’ll just summarise the key factors. Regen Digital’s higher margin income streams are expected to be subscription fees and transactions fees. If we assume that Regen Digital achieves a scale where the subscription fees are sufficient to cover the majority of its operating expenses, then transaction fees will be the source if its net margin. These fees are set at 3% to 5% of the gross value of transactions that rely on a farm’s digital twin.

A worked example

For the purposes of providing a worked example of how these variables come together to determine Regen Digital earnings potential, the following lays out the logic. Please note that this is not a forecast!!

Market size – NFF estimate of net ecosystem benefit$5bn
Market share (1 in 4 farmers)$1.25bn
Regen Digital operating margin (3%)$37.5m

Of course, we could have used the CMI’s estimate for carbon market size and adjusted for agricultural sector share. And these variables do not take into account the expected growth in green provenance markets that are likely to outgrow the environmental markets over time. But this type of approach can help in forming a view of the earnings potential of Regen Digital.

Hope that helps in your thinking!

Always consider the general CSF risk warning and offer document before investing.