Thursday, June 14, 2018

Good Weather And Better Management Have Shrunk SLC Agricola's Discount To Fair Value

Farming is a tough business, but it is a little easier in South America where favorable climate, soil conditions, and operating costs generally allow for attractive production costs for companies like Adecoagro (AGRO), Cresud (CRESY), and SLC Agricola (OTCPK:SLCJY). Even so, it has historically been difficult for SLC Agricola to generate good returns from its farming operations, as management often prioritized growth over profit and return maximization, and the stock often traded at a wide discount to its underlying fair value.

Quite a lot has changed over the past couple of years. Not only has awful weather that hurt results in 2016 switched to great weather in 2017 and early 2018 (at least in SLC Agricola’s growing areas), but management’s reprioritization around margins and returns has led to improved profits and cash flow generation. The market has noticed, with the ADRs up almost 90% in the last year and around 180% over the last two years. That has shrunk the valuation gap almost completely, and I’d call these shares fairly valued at this point.

Read more here:
Good Weather And Better Management Have Shrunk SLC Agricola's Discount To Fair Value

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