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Adecoagro S.A.

Consumer Defensive
AGRO: 

Research

  • Hold by Alpha (24/09/2023)

      Adecoagro is an agricultural company producing food and renewable energy. The business segments are Sugar, Ethanol and Energy (65% with 30% EBIT margin) and other Farming (35% with around 10% EBIT margin).

      In 2022 South America experienced an extreme drought which impacted farming production. In Q1'23 the good sugar, ethanol and energy results compensated for the lower farming results mainly in crops (caused by La Nina drought and higher costs). With higher sugar prices in 2023 earnings are expected to improve. The expected El Ninjo in 2023 should improve crops results in 2024.

      Q4'22 the earnings dropped, but on average the company makes around $1 per share in the last 36M. With higher sugar prices, energy prices and better weather conditions margins and earnings are expected to improve. My expectation is that the share price sets a new all-time high this year.

    • Business (2)

      • Land ownership

        Adecoagro owns 240.000Ha land, and manages almost 500.000Ha. The owned land is valued at $780M resulting in an average of $3.250/ha. Most land owned is in Argentina of which 50% is crops and the rest is cattle or reserve. The land owned is a valuable asset as long-term investment.

        06/10/2023 by ALPHA｜
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      • Argentina's economy

        Currently the Argentina's economy is weak with high inflation, and the rest of the region is probably not that strong. If their economies would have a positive development that would probably increase the value of all assets and product prices.

        15/03/2023 by MICKE｜
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    • Financial (1)

      • Return on Equity

        In the past 3 years the RoE is on average >10%. Earnings are mainly generated by the Sugar, Ethanol and Energy segment. The Farming profitability will improve with the weather conditions. Management aims to improve profitability with several projects; e.g. its Biogas production improves sustainability and lowers fuel costs.

        08/08/2023 by ALPHA｜
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    • Risks (4)

      • Leased sugar cane

        Sugar cane is the bases for 75% of earnings and 90% of sugar cane is from leased land. The financial report(s) do not give much insight on contract terms to help understand the value or risks. This could be a risk for (management's control over) profitability.

        13/08/2023 by ALPHA｜
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      • Country risks

        Adecoagro is exposed to country risk with its operations in South American countries, including related economic risks and inflation risks.

        08/08/2023 by ALPHA｜
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      • Farming productivity

        An analysis of the farming productivity of the company in the past 20 years shows that there is no significant improvement in the production of tons per acre land. The prevailing weather conditions El Ninjo - La Nina are a possible explanation for variations. This risk is mainly managed by a diversified portfolio of agricultural products.

        01/08/2023 by ALPHA｜
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      • Accounting

        The business and IFRS accounting is complex which makes it hard to analyze the company.

        01/08/2023 by ALPHA｜
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