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Concorde Capital Research: Industrial Milk Company expands land bank 45% on a new deal, doubles the bank YTD

December 17, 2012

Industrial Milk Company (IMC PW) is on its way to finalizing a deal to purchase a 38,000 ha farming company, the holding reported on Dec. 14. All of the targeted land bank (which amounts to 45% of IMC’s current land) is located in one of the buyer’s core locations, the Chernihiv region. The land bank is self-sufficient in agri-machinery, according to the IMC statement.  On top of that, the target offers storage capacity of 115 kt (52% of IMC’s current) and 6,000 heads of a cattle herd with 2,000 milking cows (50% of IMC’s end-1H12 number). The company did not disclose the deal’s value. If completed this year, Industrial Milk would double its business assets compared to end-2011. This will include an end-2012 land bank of 120,700 ha (+103% yoy), 6,000 milking cows (+107% yoy) and 338 kt of storage capacity (+60% yoy).

Alexander Paraschiy: The company’s new deal comes as a positive surprise for us – we expected the company would only control a 96,000 ha land bank as of end-2012 (1.25x less than the company is aiming to control). The deal looks value-accretive for equity holders, providing it’s being done at a price comparable to previous IMC acquisitions. Based on such IMC deals made in 2012, its value could reach USD 25-30 mln. Our rough estimates, based on upgraded asset growth assumptions, prompt IMC’s fair enterprise value as of end-2013 to be USD 425 mln, 30% (USD 98 mln) above our previous estimate. We estimate the fair value of the target company at USD 88 mln, based on the methodology described in our July 18 report on farming companies. The target company, as it is now, resembles what IMC was at its April 2011 IPO (land bank 38,300 ha, storage capacity 172 kt) – investors effectively valued IMC at USD 106 mln (post-money) then.

Issue — Burat-Agro, 1-A
  • Status
  • Country of risk
  • Redemption (put/call option)
    *** (***)
  • Amount
    200,000,000 UAH
  • М/S&P/F
    — / — / —