- •Investment Case 11
- •Valuation summary 37
- •Investment case 53
- •Investment Case
- •Companies Compared Stock data
- •Key metrics
- •Per ha comparison
- •Management credibility
- •Market Overview Summary
- •Ukraine in global context Ukraine produces 2-3% of world soft commodities
- •Sunflower oil, corn, wheat, barley and rapeseed are Ukraine’s key soft commodities to export
- •Ukraine is 8th in arable land globally
- •Key inputs used in crop farming Ukraine`s climate favorable for low-cost agriculture
- •Soil fertility map
- •Machinery use far below developed countries
- •Land trade moratorium makes more benefits
- •Fertilizer use
- •Inputs prices: lease cost is Ukraine’s key cost advantage
- •Case study: Production costs in Ukraine vs. Brazil for corn and soybean
- •Farming Efficiency Ukrainian crop yields lag the eu and us, on par with Argentina and Brazil, above Russia’s
- •5Y average yields, t/ha and their respective 10y cagRs
- •Yields at a premium in Ukraine on the company level
- •Growth Growth should come from yield improvement, crop structure reshuffle and acreage increase
- •Crop structure is gradually shifting to more profitable cultures
- •Combined crop structure of listed companies
- •Ukraine`s 2012 harvest outlook
- •Valuation
- •Valuation summary
- •Valuation summary
- •Asset-based approach
- •Asset-based valuation
- •Valuation premium/discount summary
- •Location matters: Value of land by region
- •Yields efficiency comparing to benchmark region
- •Cost efficiency
- •Adding supplementary businesses
- •Valuation summary for other assets
- •Cost of equity assumptions
- •Model assumptions
- •Landbank growth capped at 30%
- •Crop structure
- •Biological revaluation (ias 41) excluded
- •Land ownership
- •Company Profiles Agroton a high cost producer
- •Investment case
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement*, usd mln
- •Agroton in six charts
- •Operati
- •Industrial Milk Company Corn story
- •Investment case
- •A focus on the corn explains high margins
- •Location favourable for corn
- •Well on track with ipo proceeds
- •Weak ebitda margin in 2012 explained by non-cash items
- •Valuation
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement*, usd mln
- •Ksg Agro On the road to space/Not ready to be public
- •Investment Case
- •A 5x yoy boost in total assets looks strange to us
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement*, usd mln
- •Ksg Agro in six charts
- •Mcb Agricole Acquisition target with lack of positives for minorities
- •Investment Case
- •Inventories balance, usd mln
- •Overview of acquisitions of public farming companies in Ukraine
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement, usd mln
- •Mcb Agricole in six charts
- •Mriya Too sweet to be true
- •Investment Case
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement*, usd mln
- •Mriya in six charts
- •Sintal Agriculture
- •Investment Case
- •25% Yoy cost reduction in 2011 should improve margins
- •Irrigation is a growth option
- •Inventory balance, usd mln
- •Valuation
- •Valuation
- •Operating assumptions
- •Financials
- •Income statement*, usd mln
- •Sintal Agriculture in six charts
- •Astarta Sugar maker
- •Kernel Grain trader actively integrating upstream
- •Poultry producer
- •Appendices Land value
- •Current landowner income capitalization model
- •Farmer income capitalization model
- •Normative value
- •Biological asset revaluation
- •How do we adjust the income statement to be on a cost basis?
- •Ias 41 application summary
- •Appendix: Crop production schedule Crop schedule, based on 2012 harvesting year
- •Investment ratings
- •Contacts
Overview of acquisitions of public farming companies in Ukraine
Acquirer |
Target |
Listing venue of the target |
Acquisition price offered to minorities, USD/ha |
Notes |
Alpcot Agro |
Landkom |
LSE |
420 |
Estimate based on share swap ratio and market price at acquisition date |
Kernel |
Ukrros |
FSE |
0-600 |
It is not clear whether Kernel will buy out minority stakes at all |
Ukrlandfarming |
Dakor/ Landwest |
FSE |
0 |
Ukrlandfarming was not willing to buy out minority shares, to the best of our knowledge |
Source: Company data, Concorde Capital
Little to zero value for minorities prompts SELL recommendation
Though we acknowledge that the company’s assets are worth more than currently priced by the market (our asset-based valuation shows a fair value of USD 1,210/ha vs. current USD 193/ha) we deem current management not willing or able to achieve this value. We value the company purely via DCF, based on the historically low profitability figures and lack of turnaround initiatives, yielding a target price of EUR 0.5 per GDR, upside of 30% to the latest price. HOLD.
Risks
A change in majority shareholder is the key risk for minorities given the track record of M&A in the Ukrainian farming universe. Delisting is a risk for the stock, as the company has not yet changed its listing status on the Frankfurt Stock Exchange and its current listing level is being eliminated. The company’s corporate governance in general is a concern for us, and liquidity in the stock is hardly seen.
Valuation
We use DCF to arrive to our target price of USD 0.62 per GDR (EUR 0.50); 30% up from the latest deal. For detailed operating assumptions, please refer to the next page.
DCF output, USD mln
|
2011E |
2012E |
2013E |
2014E |
2015E |
2016E |
2017E |
2018E |
2019E |
2020E |
|||||
EBITDA |
6 |
5 |
5 |
6 |
6 |
7 |
8 |
9 |
10 |
10 |
|||||
EBIT |
4 |
3 |
3 |
4 |
4 |
4 |
5 |
6 |
6 |
7 |
|||||
Effective Tax Rate |
2% |
2% |
2% |
2% |
2% |
2% |
2% |
2% |
2% |
2% |
|||||
Taxed EBIT |
4 |
3 |
3 |
4 |
4 |
4 |
5 |
6 |
6 |
7 |
|||||
Plus D&A |
2 |
2 |
2 |
2 |
2 |
3 |
3 |
3 |
3 |
3 |
|||||
Less CapEx |
(3) |
(3) |
(3) |
(3) |
(3) |
(3) |
(3) |
(3) |
(3) |
(3) |
|||||
Less change in OWC |
(3) |
(1) |
(1) |
(1) |
(1) |
(1) |
(1) |
(1) |
(1) |
(1) |
|||||
FCFF |
- |
- |
1 |
2 |
2 |
3 |
4 |
4 |
5 |
6 |
|||||
WACC |
19% |
19% |
19% |
19% |
19% |
19% |
19% |
19% |
19% |
19% |
|||||
Sum of disct'd CF's |
|
|
11 |
|
|
|
|
|
|
|
|||||
Terminal Value |
|
|
|
|
|
|
|
|
|
38 |
|||||
Disct'd TV |
|
|
10 |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Firm value |
|
|
21 |
|
Portion due to TV |
|
|
46.7% |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Less Net Debt |
|
|
(11) |
|
|
|
|
|
|
|
|||||
Equity Value as of 25 May 2013 |
|
11 |
|
Implied exit EBITDA Multiple |
|
3.6 x |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Perpetuity Growth Rate |
|
|
|
|
|
|
|
|
|
3.0% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair price of GDR |
|
USD 0.62 |
|
|
|
|
|
||||||||
|
|
EUR 0.50* |
|
|
|
|
|
||||||||
* At USD/EUR rate of 1.26 as of May 23
Source: Concorde Capital estimates
Sensitivity analysis, EUR per GDR
|
Perpetuity Growth Rate |
|
|
Exit Multiple (EBITDA) |
||||||||
|
2.0% |
2.5% |
3.0% |
3.5% |
4.0% |
|
|
1.6 x |
2.6 x |
3.6 x |
4.6 x |
5.6 x |
WACC |
|
|
|
|
|
|
WACC |
|
|
|
|
|
-3.0% |
0.62 |
0.64 |
0.66 |
0.68 |
0.70 |
|
-3.0% |
0.35 |
0.50 |
0.66 |
0.81 |
0.97 |
-2.0% |
0.57 |
0.58 |
0.60 |
0.62 |
0.64 |
|
-2.0% |
0.31 |
0.46 |
0.60 |
0.75 |
0.89 |
-1.0% |
0.51 |
0.53 |
0.55 |
0.56 |
0.58 |
|
-1.0% |
0.27 |
0.41 |
0.55 |
0.68 |
0.82 |
+0.0% |
0.46 |
0.48 |
0.50 |
0.51 |
0.53 |
|
+0.0% |
0.24 |
0.37 |
0.50 |
0.62 |
0.75 |
+1.0% |
0.42 |
0.43 |
0.45 |
0.46 |
0.48 |
|
+1.0% |
0.21 |
0.33 |
0.45 |
0.57 |
0.69 |
+2.0% |
0.38 |
0.39 |
0.40 |
0.42 |
0.43 |
|
+2.0% |
0.18 |
0.29 |
0.40 |
0.52 |
0.63 |
+3.0% |
0.34 |
0.35 |
0.36 |
0.38 |
0.39 |
|
+3.0% |
0.15 |
0.26 |
0.36 |
0.47 |
0.57 |
Source: Concorde Capital estimates
WACC decomposition
|
2011E |
2012E |
2013E |
2014E |
2015E |
2016E |
2017E |
2018E |
2019E |
2020E |
Debt-to-Equity |
0.22 |
0.23 |
0.26 |
0.27 |
0.27 |
0.26 |
0.25 |
0.25 |
0.25 |
0.25 |
Avg. after-tax Interest Rate |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
16.0% |
Ukr. Eurobonds YTM |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
9.0% |
Equity premium |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
6.0% |
Comp.-specif. prem. |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
5.0% |
Cost of Equity |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
20.0% |
WACC |
19.2% |
19.2% |
19.1% |
19.1% |
19.1% |
19.1% |
19.1% |
19.1% |
19.1% |
19.1% |
WACC to Perpetuity |
19.1% |
|
|
|
|
|
|
|
|
|
Source: Company data, Concorde Capital estimates