Don’t be aggressive buying (AGRO). Patience, please.

I’m looking for bull markets within the secular bear market.  Precious metals and food commodities come to mind.  There are no high dividend food stocks, but there are some food commodity ETFs and some food production companies.  One of those companies is Adecoagro (AGRO).  The bottom line is AGRO should not be purchased until they can prove they can earn profits.  This company has good potential, so don’t stop reading yet.  They produce crops that people will buy in boom times or bust.  I think the bust will continue plus massive doses of price inflation.

Adecoagro S.A. is an agricultural company in South America, with operations in Argentina, Brazil and Uruguay. It is engaged in a range of businesses, including farming crops and other agricultural products, cattle and dairy operations, sugar, ethanol and energy production and land transformation. As of September 30, 2010, it owned a total of 287,884 hectares, consisted of 21 farms in Argentina, 15 farms in Brazil and two farms in Uruguay. As of September 30, 2010, it owned and operated several agro-industrial production facilities, including three rice processing facilities in Argentina, a dairy operation with approximately 4,500 milking cows in Argentina, two coffee processing plants in Brazil, seven grain and rice conditioning and storage plants in Argentina and two sugar and ethanol mills in Brazil with a sugarcane crushing capacity of 5.2 million tons. It is engaged in three businesses: farming business; sugar, ethanol and energy business, and land transformation business.

The socialist government of Argentina might pass a law restricting foreign ownership of agricultural lands.  This doesn’t help AGRO attract foreign capital to buy new properties and businesses in Argentina.  The CEO explained in the recent conference call that they are going to expand in Brazil and Uruguay where the governments are less hostile.

To hear the recent earnings conference call click on the 1Q11 Webcast button on this site http://ir.adecoagro.com/adecoagro/web/default_en.asp?idioma=1&conta=44

Adecoagro (AGRO)

Market price: $10.12

Shares: 108.87 million

Market capitalization: $1.101 billion

Image002

Dividend record: None.  The company has never paid a dividend.

Earning power: Since 2007 AGRO has an average adjusted earning power of ($0.07) per share.  The company has lost money the last three out of four years.  I only like profitable companies.  It will be interesting to see if AGRO can start producing profits in the next two years.

(Earnings adjusted for changes in capitalization.  Adjusted EPS based on 108.87 million shares)

            EPS                   Net inc.             Adj. EPS            Shares

2006

2007     $0.20                $29.170 M         $0.27                144.105 M

2008     ($0.09)             ($19.334 M)       ($0.18)             204.279 M

2009     ($0.01)             ($0.26 M)          ($0.002)            228.05 M

2010     ($0.36)             ($43.904 M)       ($0.40)             121.667 M

Four year average adjusted earnings per share ($0.07)

Consider buying below $6.51 (less than the 2010 shareholder equity without the recent secondary equity offering)

Consider selling above $9.00 (the current book value per share including the money from the recent secondary offering)

Balance sheet: Up from its purchases of farmland

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Book value per share: $9.00 (TTM and most of it from the recent secondary equity offering)

Price to book value ratio: 1.12 (good)

Current ratio: 2.89 (over 2.0 is good)

Quick ratio: 2.17 (over 1.0 is good)

Disclosure: I don’t own Adecoagro (AGRO) and I won’t until it is profitable without equity offerings.  This one is going on my watch list at $5.00 per share

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Published in: on August 16, 2011 at 2:24 pm  Leave a Comment  

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