Thursday, April 27, 2017

Agroton reports 2016 earnings

Agroton is the Ukrainian farming operation that has its operations in eastern Ukraine. The areas it farms are primarily in the same areas where the ongoing military conflict between the government of Ukraine and separatists is going on.

The conflict along with the ensuing economic disruptions this caused led to Agroton having its operations disrupted and causing a flight from its stock price.

I went to Ukraine last summer and found that western media depictions of the conflict were blown out of proportion. I also noticed that even though there was a civil war taking place most of Agroton's operations were not affected.

The stock had crashed but was so cheap that the company was priced as if it were going to go out of business. Last year with the stock fully decimated and priced as if the company would cease as a going concern I began looking at it in depth. I found that even though there was a war going on most of Agroton's operation was not affected.

The company continued farming although not at the full volumes it had in previous years. My view after visiting Ukraine was that the war had stalemated and that a political solution would eventually have to be reached to resolve the conflict.

This appears to be the case as things have quieted down on the frontlines. Life goes on and the news has went from terrible the world is going to end to a little less bad. This as regular readers know is the setup we look for. Cheap out of favor situations that have a catalyst to go from bad to less bad. This was the case with Agroton.

The worst seems to be over and we are in an uptrend

Agroton just reported annual earnings for 2016 and they were huge. The company earned $1 US per share. That means that Agroton is selling for around a P/E of 1.5x. That is almost give away prices. I am up around 250% on this position and I think there is going to be additional upside.

Now the company is cheap for a reason. The economy in Ukraine is struggling due to mismanagement, the war, and corruption. Agroton's operations are near the conflict area so that needs to be considered. Nevertheless, the economy has begun to recover and has been noted in the past one of the industries that is doing well is agriculture.

I think Agroton is an excellent speculation due to what is happening with the positive changes in Ukrainian agriculture and the realization that the ongoing conflict in eastern Ukraine is not directly affecting Agroton's operations.

Article on Ukraine agriculture:

(snip)
The significance of agriculture to Ukraine’s economy stems mainly from crop production, which accounted for nearly 67% of all domestic agricultural production in 2012,  Poland's OSW institute said in a recent report. And the bulk of this land is the chernozem, or famous “black earth” soil. Ukraine is probably the most fertile country in the world. 

In addition to being a leading grain producers, it is also the continent’s largest producer and exporter of corn, the second largest producer of sunflower seeds and sunflower oil (and the world’s largest exporter), as well as being a leading producer and exporter of wheat and barley. 

(snip) 

Agriculture is not a potential. It is already an opportunity. Ukraine has world-beating agricultural production and our leading companies have done it on their own as unlike Europe, we have no agricultural subsidies,” says UkraineInvest director Bilak. “The companies have to innovate and compete and agricultural products already accounted for 38% of our exports in 2016.”





Tuesday, April 25, 2017

Two more Japanese nuclear reactors approved for restart

Japan Times:

Saga Gov. Yoshinori Yamaguchi on Monday approved the restart of two reactors at the Genkai nuclear power plant, with each scheduled to go online as early as this summer.

The decision to clear reactor 3 and 4 at the Kyushu Electric Power Co. facility in the town of Genkai is likely to draw strong reactions from municipalities and residents opposed to their reactivation amid persisting widespread concerns about the 2011 Fukushima disaster.

“After deeply thinking it over, as it was a grave decision to make, I have reached the conclusion that (the restart) is inevitable under the present circumstances,” the governor said at a news conference.

He added, dependence on nuclear power “cannot be helped to some extent” from the standpoint of securing energy supply.

The governor is correct that it simply cannot be helped. Japan has no storehouse of energy resources so they need to diversify their energy mix and that means a certain amount of nuclear power. Slowly but surely economics will overwhelm the opposition to nuclear power in Japan.

Monday, April 24, 2017

Another robot bricklayer that can build a house in two days



Some will argue that these machines are not ready for prime time. However, the hand writing is on the wall. How many American jobs went away when we had a big influx of cheap labor from Mexico and Central America?

What is the rationale for bringing in third world labor if robots can work faster and cheaper than immigrant labor? Lots of changes coming sooner than most people think.

Trump is not Reagan 2.0, Modi in India is the the new Reagan

Business Insider:

(snip)

His latest presentation, given earlier this month at the Grant's Interest Rate Observer conference in New York City, is worth more than a glance. It's called "Reagan 2.0: Is it Here?" In a word: No. 

(snip)

Enter, India. Since his election in 2014, Prime Minister Narendra Modi has set about reducing regulation, lowering taxes, controlling inflation, and addressing banking issues (much like Reagan did and, inflation aside, much like Trump means to do).

For Modi, though, the backdrop is correct. And the way Litinsky tells it, there are opportunities for investors who can understand where growth is going.

Good presentation and bolsters my view on India being a great place to invest over the next decade.




Sunday, April 23, 2017

Input Capital a long term wealth creation machine

I have owned shares in Input Capital for a couple of years. The company does streaming contracts on canola in Canada. You can go to the company website to learn more. I also wrote an article about the company when I first purchased the stock. 

I was reading the company's latest investor presentation and thought I would update readers on why this is a great company that is still trading at reasonable valuations. This slide in the presentation pretty much tells the story of why I like this company.


The company continues to take revenue from in place streaming contracts and invest the funds into new streaming contracts. The company has already proven the streaming concept over the last couple of years and now the business is a rinse and repeat exercise. 



More streaming contracts is leading to higher revenue and cashflow. In fact the company initiated a dividend last year and I would expect that to increase over time as cashflow increases. 

I was listening to the Frank Curzio podcast and he was interviewing Chris Mayer who runs the Bonner Family office. Mr. Mayer was talking about his book about 100 baggers and how he researched how companies that went up over 100 times in value did it. 

Basically it amounts to consistent returns on invested capital being reinvested back into the business year after year and then letting compounding have its effect. That is basically what Input Capital is doing. 

They also talk about India and how it is Mayer's favorite emerging market. He also mentions Fairfax India as his favorite way to play India. 

I am long Input Capital and Fairfax India.



Saturday, April 22, 2017

India massively re-engineering its economy, big time growth will result

Seeking Alpha:

(snip)

While we are busy discussing policies ranging from protectionism to immigration in the United States, India quietly laid the foundation for a technology empire that is going to digitally connect 17% of humanity. The full potential of India's push for digitization will be realized in time, but in my mind this is perhaps the most exciting technology development happening in the world today.

(snip)

India has adopted and almost finished a biometric framework, Aadhaar, that uses fingerprints and retina scans of nearly 99% of its population, which essentially means 17% of humanity.1

This sophisticated biometric database-still missing in the Western world-is being used to connect every way an individual interacts with the overall economy. This will revolutionize the entire economy.

(snip)

Over the last year and a half, more than 270 million newer bank accounts have been opened with more than 665 billion rupees coming into formal banking.2 If this weren't enough, all these accounts are linked to the biometric information, increasing efficiency in processes ranging from tax audits to transfer of welfare money and the elimination of middlemen.

There is quite a bit more to what the Indian government is doing with regard to digitizing its economy. Meb Faber interviewed Raou Pal about this and Mr. Pal calls what is going on in India "the biggest macro story in the world". This is why I am investing alongside Prem Watsa. the Canadian Warren Buffet, in Fairfax India for the long term.

This will be one of the major stories of the next decade and very few people are discussing it. That means opportunity before the masses get clued in.

Thursday, April 20, 2017

Burisma plans on spending $100 million in Ukraine

ibttimes:

Last month, Burisma Group announced that it would invest US$100 million to increase Ukraine’s gas production by developing new gas fields and drilling 20 new wells. This impressive investment is a major step in helping Ukraine achieve energy independence – a strategic goal that has become a national priority over the last few years. On this $100 million investment, $74 million will be paid in taxes to the Ukrainian State.

Burisma Group President Nikolay Zlochevskyi commented, “Burisma produces billions of cubic meters of gas, pays billions hryvnias to the State budget and invests billions in gas production. Helping Ukraine achieve energy independence is one of our company's core strategic aims and we are proud to be able to play an important role in this process. We will continue investing in Ukraine and working hard to support the country at this critical time."

Not sure how much of this will be spent on KUB-GAS partnership land. The good thing to my mind is that Burisma is introducing western drilling and completion technology into its gas fields. This will have the effect of stimulating the service sector in Ukraine and benefiting all operators including Cub Energy

Wednesday, April 19, 2017

Indian economy is on fire

World Economics:

The Indian Sales Managers Index (SMI) for April, shows that the Indian economy has largely recovered from the effects of December’s demonetisation policy. Overall economic activity, as indicated by the Headline’ Sales Managers Index (SMI), has surpassed November’s previous all-time survey high. The Market Growth Index has recovered rapidly and has now comfortably overtaken previous demonetization highs. 

The Staffing Levels and Business Confidence Indexes have also recovered to near previous highs in April. Perhaps the most disturbing element of the April survey is the rapid increase in Prices Charged Index. However, sales managers are reporting that this could be a short term phenomenon as businesses try to recover revenue lost through the January/February sales slump.

 Profit margins have recovered from the January/February dip and now look very healthy. The Indian Rupee continues to be much undervalued on the World Price Index (WPI) scale by 44%, using April data. Businesses are taking advantage of the situation created by such an undervalued currency, with the majority of panel members feeling that the current FX level remains advantageous. 

I am very optimistic about the Indian economy over the next few years. Playing this trend via shares in Fairfax India.

Tuesday, April 18, 2017

Mongolian Business Confidence at 33 month high

World Economics:

The Headline Mongolian Sales Managers’ Index (SMI) was 44.7 in April, a solid improvement from the level of 41.7 in March. There has been a rapid increase in the levels of all component indexes of the SMI over the past 6 months, indicating that the economy has turned a corner from the low in 2016.  

There is the prospect of renewed growth over the coming months if the current trends continue. In unadjusted terms the Market Growth Index grew to 49.6 in April, the highest level since January 2014. The Business Confidence Index also increased rapidly with panel managers reporting renewed optimum stemming from the $440million loan package from the IMF. The government has indicated that they would like to stimulate growth for the key mining, agriculture and tourism sectors.

It appears that there is finally light at the end of the tunnel. Hopefully this trend will continue and we can see renewed growth in the Mongolian economy.


 Mongolian stocks are beginning to see some life over the last couple of months.


The Mongolian Tugrik has been strengthening against the dollar the last few weeks.
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