Adecoagro S.A.
Research
Hold by Alpha (14/08/2024)
- 15.00 +29.53% by 14/08/2025
Adecoagro is a non-cyclical investment into industrial scale agriculture in South America. The business segments are Sugar, Ethanol and Energy (50% with over 50% EBITDA margin) and other Farming (50% with around 15% EBITDA margin).
In 2024 the company has a 3% dividend yield plus 9% share repurchase program. This would have a positive effect on future ROE and EPS. Combined with <6x PE for TTM earnings the company is relative cheap (20% margin of safety).
Valuation (1)
Intrinsic value
Adecoagro is undervalued based on its 2023 and current performance in Q2'24. The company only recently turned profitable in 2020. In 2023 it doubled EPS compared to 2022 (and 2021).
The short profitable period add to the uncertainty for long-term profitability. Also the company performance is subject to weather conditions, global pricing developments and currency risks.
I think management has done a good job and expect this to be reflected in higher multiples when the uncertainty around the valuation reduces.
14/08/2024 by ALPHA｜01Business (1)
Farmland
Adecoagro has 560.000Ha farmland under management of which 230.000Ha owned land. The owned land is valued at $745M resulting in an average of $3.250/ha. Most land owned is in Argentina of which 55% is crops and the rest is cattle or legal reserve.
14/08/2024 by ALPHA｜01People (1)
Co-founder
The CEO Mariano Bosch is co-founder and leads the company since 2002.
14/08/2024 by ALPHA｜01Financial (2)
Return on Equity
In 2023 the Return on Equity increased to 18%. In recent years management performed projects that increased profitability. The company has become more sustainable and self-sufficient in energy supply with Biogas and solar energy. In addition 10% share repurchase in 2024 has a positive effect on ROE.
14/08/2024 by ALPHA｜01Cash flow
Adecoagro increased the operating cash-flow margin above 35% in Q2'24. The free cash-flow is $2.5 per share resulting in a valuation below 5x FCF. The good performance resulted in a significant debt reduction and good cash return for the shareholders.
14/08/2024 by ALPHA｜01Risks (3)
Accounting
The business and IFRS accounting is complex which makes it hard to analyze the company. Under IFRS the company is obliged to follow valuation regulations. In addition the company uses hedging and inventory levels to optimize its quarterly performance.
The company also reports an Adjusted Net Income that excludes items to better reflect its performance.
14/08/2024 by ALPHA｜01Country risks
Adecoagro is exposed to country risk with its operations in South American countries, including related economic risks like currency deflation.
14/08/2024 by ALPHA｜01Atmospheric phenomenon
El Niño and La Niña are weather phenomena that impact harvest in South America. In 2024-2025 La Nina is expected to cause more draught and cold spells in the area.
14/08/2024 by ALPHA｜01