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Viterra


Guest Dazel
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Guest Dazel

 

Wheat prices are up over 80% since june....

We have owned Viterra (regretably bought higher earlier!!!)...They are the largest grain handler in Canada. Their stock was killed by a wet planting season in western Canada this year....They are huge and really not well understood by the market. They were heavily shorted in May and June but the wheat surge is catching the shorts off guard. This is a very solid cashflow company...boring usually but not with price surges like this.

 

Sprott owns it

Third Avenue owns it as well...they have a report on it on Guru focus...

obviously the move up in ag prices is game changer since the article.

 

This will be a long term hold as we loaded up on the way down started buying at $10.

 

Dazel.

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yes, the stock has gotten cheaper...and cheaper. but what is the appeal here? is there a long term investment case to be made? or just a quick flip on a bounce from a depressed price?

 

if your intesrested in the ag space, atg.to looks more interesting

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Dazel,

 

The Canadian Wheat Board serves as a single-desk seller of all wheat originating in Western Canada that is destined for export markets (there is a free market for low quality domestic feed wheat).  The CWB purchases all high quality wheat from western farmers and then sells it to domestic or export buyers.  The proceeds are pooled for each grade of wheat and distributed to the farmers.

 

Viterra's operations in Western Canada should not meaningfully benefit from the higher wheat prices, as their function is primarily grain handling rather than marketing.  As you noted, planted acreage is drastically lower due to a wet spring, so grain handling volumes might be a little shorter than previous years.

 

The one area where Viterra could benefit is from farm input sales (ie, fertilizer, certified seed, pest control, etc) for next spring.  When prices are high most farmers crank up the inputs to get better yields.  But even that probably wouldn't move the needle too much.

 

If you want to play the wheat story, better to look at US-based companies like Cargill or ADM.

 

SJ

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  • 2 months later...

 

The stock has performed well....especially in cdn $$$

 

Most people do not realize....what Viterra has become...sorry SJ..I have not had time for a rebuttle...other than Viterra will have about $9 billion  in sales this year...across a very diverse line of AG products..the rise in grain prices does have an effect on Viterra (below)..However, it is not specific to grain prices...volumes are key...as you will see they own all 8 grain terminals in south western Australia...the needle is moving..I would have another look...Cargill is a potential buyer of the company in my mind.

 

"Australia is experiencing strong export demand for our grains from now through to March-April 2011. The hole left by the withdrawal of the 2010 “Black Sea” grain supplies will be met mainly by Australia and USA. Shipping slots for both east and west coast grain from Australia are booked solidly right through to April 2011."

 

disclosure

We own a big postion.

 

dazel.

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  • 3 months later...

 

update: good results today...better news: future looks bright....a lot of nay sayers here for a 30 to 40% return...and counting!

 

we are happy...sold some but still have a good size chunk.

 

dazel.

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update: good results today...better news: future looks bright....a lot of nay sayers here for a 30 to 40% return...and counting!

 

we are happy...sold some but still have a good size chunk.

 

dazel.

 

 

dazel,

 

Given the tone of your post, I'm not too sure what to say.  I suspect that I'm one of your "naysayers."

 

The stock price of Viterra increased which is great for your portfolio.  On the other hand, we're not right or wrong just because the price of a stock goes up or down....rather we're right or wrong because of the thought process underlying our investment decisions.  Going forward, part of that thought process needs to include a sober reflection of whether VT's operating results on a fundamental basis justify a price of $11/sh (or even the $8 that it sold for in August)....and it is those operating results that would merit celebration more than the short-term movement in stock prices.  From my perspective, the results are not yet compelling.  TTM EPS was $0.30, and even if you take Q4 EPS of $0.14 and run-rate it for an entire year you still only get earnings of $0.56/sh.  I'm from Missouri.

 

As always, Mr. Market will do what he does in the short term.

 

SJ

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SJ,

 

Not to meant to have a tone...sorry if it seemed that way...I appreciate your response. I think you were one of the only ones...that was more where I was kidding. ANYWHO. You are correct on the market...I however, think it is highly undervalued still...more obvious at $8...only my opinion of course. No one is really interested so I will be short.

 

How much would it cost to rebuild their assets? Would you get government approvals to do it? Who do they compete with globally on the same scale? Are they a take out target to Cargill and the rest? why? Are they a critical component to the global food supply?

 

Their cashflow is significant...as their depreciation on asset base is large but their capex is not comparable.(cashflow) They bought their assets cheap in comparison to what they are worth now...they have bet big in the last 6 years on the global food market.

 

There is one big negative which I would agree with...that is the weather...they took a significant hit this year from the sask floods and they were lucky in Australia. That being said we have not seen the company fire on all cycliders since their latest acquistions...as you say only the long term counts.

 

They are a $4b market cap and they did $400 m in cashflow 2008..they are now almost twice as big..management has to put it together...for it to be worth what I think. we shall see. 

 

Dazel.

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SJ,

 

Not to meant to have a tone...sorry if it seemed that way...I appreciate your response. I think you were one of the only ones...that was more where I was kidding. ANYWHO. You are correct on the market...I however, think it is highly undervalued still...more obvious at $8...only my opinion of course. No one is really interested so I will be short.

 

How much would it cost to rebuild their assets? Would you get government approvals to do it? Who do they compete with globally on the same scale? Are they a take out target to Cargill and the rest? why? Are they a critical component to the global food supply?

 

Their cashflow is significant...as their depreciation on asset base is large but their capex is not comparable.(cashflow) They bought their assets cheap in comparison to what they are worth now...they have bet big in the last 6 years on the global food market.

 

There is one big negative which I would agree with...that is the weather...they took a significant hit this year from the sask floods and they were lucky in Australia. That being said we have not seen the company fire on all cycliders since their latest acquistions...as you say only the long term counts.

 

They are a $4b market cap and they did $400 m in cashflow 2008..they are now almost twice as big..management has to put it together...for it to be worth what I think. we shall see. 

 

Dazel.

 

 

It would indeed cost a minor fortune to replicate their existing asset base.  In fact, it did cost Viterra's predecessors a minor fortune to build out the asset base, which might be why they ran into financial difficulty.  However, the original acquisition/construction cost is not really that relevant.  What matters is the return that they are able to generate from that asset base.  The only way I can come close to justifying the current market valuation is to ignore depreciation.  However, I tend to be hesitant to focus on operating cashflow alone for a company like this because you can tighten up on maintenance capex for the short term, but it's hard to do forever....at some point depreciation becomes relevant.

 

SJ

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  • 3 weeks later...

 

 

Sj,

 

thx for  the comments....we have now sold out of our position. It rose a lot very quickly and we see

the merit in some of your arguments. I would however, argue that "Replacement value" means everything when you are in a business. The market tends to forget that sometimes. So relavance in business is always there. To Cargill it is the assets that matter  (cost of buiding vs. acquisitions)...and we still see obvious synergies...they would not let Viterra get taken out by someone else because scale matters in this business...The Margin of safety is gone after a 50% increase..so we sold. The global food business will be the center of attention for many many years...Best case scenario it drops on another rainy season and we will buy it again.

 

Dazel.

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  • 1 year later...
Guest Dazel

Thanks zorro.

 

Likely Cargill or Archer Daniels...If I were betting on it I would think Archer Daniels...I am skeptical that they will want to pay enough....that is why I sold.

it could get interesting though if there is a bidding war...we only reentered recently at around $10.50...so this is a double dip for us...nice to be lucky sometimes.

 

Dazel

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