SLC Agricola Reaping Booming Commodity Markets And Advancing Its Value-Creation Strategy

 

I’ve written many times of my admiration for SLC Agricola (OTCPK:SLCJY), as management has shown great aptitude in generating above-average returns from Brazilian farmland, while simultaneously looking to maximize the value of its land bank and shift toward a more asset-light strategy by monetizing owned acres at attractive prices and expanding its leased acreage for planting.

When I last wrote about SLC Agricola, I thought the valuation was “more interesting”. At the time, corn was trading at around $3.65/bu, soy at $10.03/bu, and cotton at $0.66/lb. Now those commodities are trading at around $5.60/bu, $14/bu, and cotton at $0.78/lb, so you can probably imagine what has happened to SLC Agricola’s share price since then (up ADRs are up close to 65%).

Not only does SLC Agricola continue to see strong yields from its farmland that are typically above the averages for Brazil, management is locking in attractive prices for the ’21 and ’22 crops through hedging. Management also executed on a very attractive transaction that will significantly expand the company’s leased acreage at good prices.

I don’t believe today’s crop prices are new normals, but I do believe that SLC Agricola’s hedging program will secure at least two more strong years of EBITDA (weather permitting), and I believe the asset-light model and above-average yields will continue to drive good long-term results … albeit not at 2020-2022 levels. I do still see worthwhile potential in the shares on a long-term basis, but investors need to appreciate that in the short term the share price is often heavily influenced by commodity prices (cotton and soy in particular).

 

Read more here: 

SLC Agricola Reaping Booming Commodity Markets And Advancing Its Value-Creation Strategy

SLC Agricola Trading At A More Interesting Valuation Today

Agriculture is a tough business, and a lot of the value in publicly traded agriculture companies like SLC Agricola (OTCPK:SLCJY) comes from waiting for the underlying value of the land to appreciate - the old saw about “nobody’s making more land” isn’t entirely true in Brazil as more land comes under cultivation, but the gist of it is true and productive farmland continues to appreciate in value. That said, SLC Agricola has shown over and over again that it can reliably earn decent returns from farming, with yields that are among the best in Brazil, through meaningful adoption of technology.

I value SLC Agricola in several ways, including a discounted cash flow model that values the farming outputs and adds in the net value of the land, an NAV approach, and a straightforward EV/EBITDA. All methods suggest that SLC Agricola is undervalued now, but these shares often trade with crop prices, so investors need to understand the elevated volatility that can go with that.

 

Read the full article here: 

SLC Agricola Trading At A More Interesting Valuation Today

SLC Agricola Still Differentiated On Quality, Less So On Valuation

Brazilian ag company stocks have perked up recently (or at least Adecoagro (AGRO) and SLC Agricola (OTCPK:SLCJY) ), finally driving some good news for investors who’ve seen a difficult stretch with these stocks. Specific to SLC Agricola, the shares are up about 30% from my last article on the company, helped by both ongoing strong equation by the company and improving commodity prices. I also believe the company’s ongoing efforts to drive toward an asset-light model are contributing, with another sale-leaseback transaction at an attractive premium to the appraised value.

The biggest challenge I see with SLC Agricola is whether the company can continue to pass over ever-higher hurdles. Management believes they can improve yields and profit margins even further, but they’re already one of the best in Brazil, and bad weather or adverse commodity market moves can undo a lot of that in the short term. Increasing sale-leaseback activity could still add value, but the shares aren’t an easy valuation call anymore.

Read more here:
SLC Agricola Still Differentiated On Quality, Less So On Valuation

Strong Productivity And Asset Management Bode Well For SLC Agricola

It's been a while since I've written about SLC Agricola (OTCPK:SLCJY), and the shares have had quite a ride since then, trading up as much as 30% relative to the price at that last article before starting a downward slide that now has the shares trading about 20% below where they were last year. While they're all different companies, that net performance largely mirrors the disappointing performance at Adecoagro (AGRO) (which does some farming, but is predominantly a sugar/ethanol company), and significantly lags the performance of other Brazilian ag/sugar/ethanol players like Cosan (CZZ), Sao Martinho, and BrasilAgro (LND).

Commodity companies are difficult in general, and agricultural commodity companies are even more difficult given the significant impact local/regional weather can play (among other factors). At SLC, though, I think the company's consistent superior productivity must factor into the valuation as well as management's strategy to go asset-lighter and conduct more sale/leaseback transactions. I see fair value in the $5.25 to $6.25 range, though I would note the liquidity on the ADRs isn't great.

Read the full article:
Strong Productivity And Asset Management Bode Well For SLC Agricola

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

Adecoagro Continues To Invest In Growth Amid Brutal Commodity Pressures

My biggest issue with investing in Adecoagro (AGRO) has always been its vulnerability to commodity price swings, and those swings have been hammering the company and the stock over the last year. At the same time, management has continued to invest in projects that it believes will deliver meaningful long-term growth – the latest being the acquisition of Argentina’s largest dairy processor. 

Adecoagro has shown that it can run its diverse operations well, but efficient operations in sugar, ethanol, and farming can only go so far in the face of commodity price pressure. With that, the shares do still look undervalued, but the company’s exposure to commodity price risk may be too large for some investors.

Read more:
Adecoagro Continues To Invest In Growth Amid Brutal Commodity Pressures

Weak Yields And Sentiment Weigh Heavily On SLC Agricola

While Cosan Ltd. (NYSE:CZZ) and Cresud (NASDAQ:CRESY) have shot up since the latter part of January, SLC Agricola (OTCPK:SLCJY) has performed more like Adecoagro (NYSE:AGRO) in going nowhere fast. Investors are no longer mad about buying up hard asset plays like farmland, and SLC Agricola has also seen historically bad weather whack its crop yields. Add in the fact that these ADRs weren't particularly liquid even in the best of times and you have a pretty uninspiring set-up for the shares.

Value remains a point of frustration with me. I can tell you that an independent appraisal values the company about 25% more than the market does even if you just look at land values and debt (and give no value to other company-owned assets or any potential appreciation through development). Likewise, a discounted cash flow analysis - typically a pretty ungenerous valuation approach for farming companies - suggests undervaluation of around a third.

It's tempting to think that this year's bad weather won't repeat again next year and that SLC Agricola's proven ability to generate above-average yields and develop its land will be better valued by the market in the future, but the illiquidity of the shares and uncontrollability of the business are both significant factors to consider.

Read more here:
Weak Yields And Sentiment Weigh Heavily On SLC Agricola

Adecoagro's Valuation Looks A Little Too Sour

When I last wrote about Adecoagro (NYSE:AGRO), I thought the company was in place to benefit from an improved political and economic situation in Argentina and its low-cost position in ethanol in Brazil, but I thought the valuation was less than compelling, and particularly next to Cosan (NYSE:CZZ) and SLC Agricola (OTCPK:SLCJY). Since that last article, Adecoagro shares have basically been flat while Cosan has soared, SLC Agricola has gone up a bit (around 16%), and another Argentine farming/farmland play, Cresud (NASDAQ:CRESY), has been quite strong.

At this point, I'm more bullish on Adecoagro again. While low global grain prices are a concern, prices have been quite healthy in the sugar and ethanol business. What's more, the company continues to periodically sell farmland well in excess of appraised value, and the economic reforms underway in Argentina make further appreciation a credible driver. With a fair value around $13.50 to $14.50, Adecoagro isn't shockingly cheap, but I think it is worth the elevated level of risk that goes with an emerging market commodity play.

Continue here for the full article:
Adecoagro's Valuation Looks A Little Too Sour

Seeking Alpha: Cosan Ltd Looks Like Value The Hard Way

The shares of Cosan Ltd. (NYSE:CZZ) are hardly unique in being Brazilian shares that have done poorly over the past year, as Brazil's ongoing economic struggles and currency weakness have badly hurt many stocks. Cosan has a host of its own challenges, though, as investors wrestle with the prospects for Cosan SA's (CSAN3.SA) Raizen joint venture to improve profits and cash flow in the sugar and ethanol operators, as well Rumo's (RUMO3.SA) very weak share price and its prospects for raising much-needed capital on acceptable terms.

The positive spin on Cosan Ltd. is that it gives investors a one-stop exposure to one of the largest sugar and ethanol producers in the world, as well as a leading operator of gas stations in Brazil, a large natural gas distribution business, and a growing rail and port operator. The negative spin is that those sugar and ethanol operations have never generated great returns on capital and that the logistics operations need very large amounts of capital in the coming years. There's also a negative argument for complexity here - this is a tough business to model and the holding company structure creates risks and inefficiencies.

When it's all said and done, I believe that Cosan Ltd. is undervalued, but this is a good example of a stock where investors may find the return prospects significantly overshadowed by the risk and complexity. These shares can definitely outperform on a Brazilian economic recovery, but there are significant commodity, macroeconomic, and operational risks to consider.

Read the full article here:
Cosan Ltd Looks Like Value The Hard Way

Seeking Alpha: SLC Agricola Closer To Dirt Cheap

Like most equities in Brazil, reaching out to grab SLC Agricola (OTCPK:SLCJY) (SLCE3.SA) has been like grabbing a falling knife. While the local shares haven't done quite as bad (SLCE3.SA's shares down about 12%), the ADRs have fallen another 35% or so since I last wrote about the company, as the shares have been hit hard by a weak Brazilian real, some productivity challenges, and ongoing concerns both about Brazilian equities and farming companies in a lower commodity price environment.

The performance of Brazilian equities over the last year or so has been an abject lesson that things can always somehow manage to get worse. Even so, SLC Agricola's share price seems to reflect a level of pessimism that seems out of line with the real fundamentals. Although the company's land is consistently more productive than U.S. cropland when it comes to cotton and soy and not too far out of the running with corn, the market values SLCJY's land at nearly half the value of U.S. cropland. Even allowing that the challenges of the Brazilian market (including higher logistics costs) should demand a discount to U.S. values, I have to wonder whether the market isn't overly discounting the long-term value of SLC's farmland, and by extension, the shares of the company.

Read more here:
SLC Agricola Closer To Dirt Cheap

Seeking Alpha: SLC Agricola Whammied Well Below Fair Value

In the summer of 2013, I wrote about three South American agriculture companies as Top Ideas. Two of the three, Cresud (NASDAQ:CRESY) and Adecoagro (NYSE:AGRO), have done quite well since then, despite ongoing problems in Argentina. The third, SLC Agricola (OTCPK:SLCJY), has been a skunk - declining about 25% on a triple whammy of bearish ag sentiment, bearish Brazilian land value sentiment, and the depreciation of the Brazilian real (the local currency shares are up 4% over the same time).

At the risk of doubling down on a bad call, I think this reaction is overdone, and that there is some meaningful opportunity here. Calling a bottom in corn, cotton, and soybeans is risky, at best, and I do think it is too much to hope that Brazil's farmland will continue to appreciate at strong double-digit rates. Even so, I think SLC Agricola is getting too little credit for being a very efficient operator with significant underlying land value and the potential to leverage ongoing improvements in Brazilian's transportation infrastructure.

Continue here for more:
SLC Agricola Whammied Well Below Fair Value

Seeking Alpha: Adecoagro's Diversity Sweetens The Value

These are rough times for both agriculture and Brazil, but Adecoagro (NYSE:AGRO) may yet be a stock that investors want to look at today. Calling a bottom in agricultural commodities is a fool's errand, but the company has more going for it than just the prevailing price of corn or soy. Adecoagro has established a quality sugar/ethanol/cogeneration operation in Brazil, and should be well placed to benefit from improving conditions. It is also leveraged to the extremely discounted farmland values in Argentina, and can benefit if a new government later this year pursues a more rational set of economic policies.

Adecoagro hasn't outshined Cresud (NASDAQ:CRESY) since mid-July of 2013 (when I wrote up both stocks as Top Ideas), but a 60%-plus improvement in the stock price since then still isn't bad. I believe that it is more than 10% undervalued just on the basis of its sugar/ethanol operations, and if economic reforms in Argentina allow the real underlying value of the company's farmland there to come to the surface, a fair value in the mid-to-high teens is not out of the realm of possibility.

Read the full article here:
Adecoagro's Diversity Sweetens The Value

Seeking Alpha: Leveraged To Changes In Argentina, Cresud Can Still Outperform

"You have attributed conditions to villainy that simply result from stupidity" (Robert Heinlein, Logic of Empire)

It is hard to imagine that Christina and Nestor Kirchner could have run Argentina's economy deeper into the ground if they tried, but the reality is that nationalization, protectionism, regulation, currency controls, and other ill-considered economic policies have seriously damaged Argentina's economy. And yet, I think there's an argument to be made that Cresud (NASDAQ:CRESY) can still make sense in an aggressive portfolio.

Cresud should benefit from a change in government later this year, particularly if various candidates follow through on their pledge to rebuild the economy in part around agriculture and pursue ag-friendlier policies (including reducing or eliminating export tariffs). If Argentina's economy does improve, I would expect Cresud to also benefit from a catch-up trade in the value of Argentina's farmland (which should be worth more than it is, given its relative productivity and access to transportation infrastructure). Last and not least, Cresud may be poised to benefit from a bottoming of the ag cycle. All of that said, a lot can still go wrong within Argentina and Cresud's sizable stake in IRSA (NYSE:IRS) means this is not just a pure ag play.

Follow this link for the full article:
Leveraged To Changes In Argentina, Cresud Can Still Outperform

Seeking Alpha: Cresud Finally Trading On Some Of Its Potential

Sometimes a little extra attention can make all the difference. I don't want to suggest that Morgan Stanley's bullish initiation of coverage on Cresud (NASDAQ:CRESY) is the only reason the shares have done so well since April, but it can't hurt to have a major sell-side firm beating the drum on an undervalued company. Cresud is still facing plenty of challenges, not the least of which are weak crop prices and a weak Argentine economy, but it seems as though investors are finally a little more willing to give some credit to the underlying potential value of this company's large Latin American agricultural land portfolio.

Read more here:
Cresud Finally Trading On Some Of Its Potential

Seeking Alpha: Weak Crop Prices Weigh On SLC Agricola

Weak crop prices are music to the ears of BRF SA (NYSE:BRFS) shareholders, but quite another matter for companies like SLC Agricola (OTCPK:SLCJY) and Brasilagro (NYSE:LND). Although the majority of SLC Agricola's value stems from buying undeveloped land and turning it into much more valuable developed land, weak prices are nevertheless bad for near-term sentiment and results. Without the leverage to sugar and ethanol of Adecoagro (NYSE:AGRO) and the leverage to Argentina of Cresud (NASDAQ:CRESY) (and to some extent Adecoagro), SLC Agricola has been left behind this year but still offers some appealing value for the future.

Read the full article here:
Weak Crop Prices Weigh On SLC Agricola

Seeking Alpha: Adecoagro Showing Some Life

I know there are at least a few Seeking Alpha readers who own Adecoagro (AGRO) for the potential this company offers in becoming a bigger player in Brazil's sugar and ethanol industries and realizing value growth in its land holdings. I also know that they've gotten a little frustrated with the stock's performance as the company has muddled through worries about crop prices, weather, and issues in Argentina.

The shares did well from the summer of 2013 into the fall and then went to sleep for about half a year. More recently the shares have headed higher again, as Brazilian equities in general have come around and sugar/ethanol producers like Cosan (CZZ) and Sao Martinho (OTC:SRTOF) have rebounded as well. With sugar prices and ethanol prices looking pretty solid, Adecoagro could be in for a better year, though currency moves could create some considerable choppiness in the numbers.

Please read the full article here:
Adecoagro Showing Some Life

Seeking Alpha: Can Black Earth Farming Grow Profits?

It looks like enthusiasm has drained out of the global farmland market, as owners in Canada, the U.S., and Brazil are seeing either slower increases or actual declines in appraised value. This is not altogether surprising. While it is true that the global population is growing and these people will need food, that doesn't mean particular markets cannot and do not get overheated when investors suddenly see it as "the next big thing."

While I've written at some length about Brazilian and Argentine agriculture companies like Adecoagro (AGRO), Cresud (CRESY), and SLC Agricola (OTCPK:SLCJY), this time around I'm interested in Black Earth Farming (OTC:BLERF). The legal structure of the company is fairly convoluted; the parent company is based in the Channel Islands, the subsidiaries are legally Cypriot and Russian companies, the shares are listed in Sweden as Swedish Depository Receipts, and the U.S. ticker is the ADR of those shares. As the farmland assets are in Russia, I'm going to go with calling this a Russian farmland company.

Please read more here:
Can Black Earth Farming Grow Profits?

Seeking Alpha: Macro Events Buffeting Adecoagro

Farming is hard enough without the added issues of questionable government actions, but that's the reality of the operating environment for Adecoagro (AGRO). This large South American sugar, ethanol, farming, and land company has had to deal with the "known unknowns" of uncertainties in sugar, ethanol, crop, and land prices, but also the ongoing problems in the Argentine economy, the risk of larger harvests in North America, and now the geopolitical issues between Ukraine and Russia.

Adecoagro remains a patience-testing play on the realization of the underlying value of its land holdings and its long-term expansion plans in sugarcane processing and ethanol production. Today's valuation continues to look well short of that implied by recent land transactions and Adecoagro looks like a good value option for investors who can sit patiently through the ups and downs.

Read more here:
Macro Events Buffeting Adecoagro

Seeking Alpha: Poor Yields Sap SLC Agricola

Three out of four will have to do. My Alpha-Rich calls to buy South American ag companies Adecoagro (AGRO) and Cresud (CRESY) have both worked out well, with performance well ahead of the S&P 500, and my relative bearishness on BrasilAgro (LND) has likewise worked out with a share price decline of 10%. SLC Agricola (OTCPK:SLCJY) is the exception and the stock that has not performed as I had thought it should. While the 8% return from my call has basically matched the performance of the Bovespa, it lags the performance of the S&P 500 and the performance of the Brazilian-listed shares (SLCE3.SA), which have risen about 18%.

Blaming currency moves and/or skittishness about land values in Brazil is fine to a point, and I do think that the disappointing cotton harvest played a significant role. Management isn't really changing much about their operating philosophy, though the company's decision to lease land instead of buy it does give some reason for pause. I do believe that SLC Agricola remains one of the best-run ag companies in the market and I continue to believe that the shares are undervalued at these levels.

Please continue here:
Poor Yields Sap SLC Agricola

Seeking Alpha: Better Times, Worse Times For Cresud

I'm pretty happy with the calls I made on South American agriculture companies back in July of this year. As I discussed yesterday, Adecoagro (AGRO) is up nearly 20% from my Alpha-Rich call, while BrasilAgro (LND), my least favorite of the four, is down more than 10%. SLC Agricola (OTCPK:SLCJY) has been something of a disappointment, up only about 5%, but my high-risk/high-reward call Cresud (CRESY) laps the field with a better than 40% return from my initial recommendation.

Cresud is in a tricky spot. On one hand, the end may well be in sight for the Kirchner brand of Peronism and that should be good for Argentina's economy. On the other hand, Argentina's economic history generally suggests that a change in government is more of a distinction without a difference. Elsewhere, I believe Cresud's land values are likely understated and that the company is unlikely to see the same bad weather that has hurt yields in recent yields, but farming is inherently unpredictable and the problems in Argentina are restricting the company's growth and value-creation potential.

On balance, Cresud is still undervalued. Its undervaluation is roughly on par with that of Adecoagro, and choosing between the two seems to me to be more a matter of whether you prefer larger upside or smaller downside.

Read more here:
Better Times, Worse Times For Cresud