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.”





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