Regardless of the financial systems and their relative security, people have to eat and the more people, the more they eat, so good agriculture stocks are smart long-term buys says Marc Johnson of Investment Reporter.
Winnipeg-based Viterra Inc. (Toronto: VT) is one of the food stocks that we regularly examine. We’ve upgraded this grain handling and marketing, agriproducts, and processing company to a buy.
That’s because it’s becoming increasingly profitable, yet it’s cheap. Viterra is now a buy for long-term gains and attractive dividends that may rise further.
In the year to October 31, we calculate that Viterra earned a record $274 million, or 74 cents a share. This excludes one-time costs for the impairment of goodwill, for integration expenses, and for losses on the disposal of assets. This was up sharply from $144 million, or 39 cents a share, the year before.
Sales rose more than regular costs. All three of Viterra’s divisions earned more.
In fiscal 2011, Viterra’s sales jumped by 42.8% to $11.8 billion. The higher sales reflected several factors: Higher sales from Viterra’s three divisions, capital investment, and acquisitions.
Why Did Revenue Rise So Sharply?
Viterra’s 2011 grain handling and marketing revenue shot up by 50% to $8.5 billion. It profited with much higher grain shipments from Australia, better grain shipments from North America, and a 13% rise in the global pipeline profit margin.
Viterra’s 2011 agriproducts revenue rose by over 32% to $2.4 billion. Simply, it sold more fertilizer at higher prices. Finally, the company’s 2011 processing revenue climbed by over 39% to $1.8 billion.
Viterra’s revenue rose thanks to net capital spending of $202 million on new projects, such as a malt facility in Australia and a canola crushing plant in China. Also, acquisitions of $7.8 million for new pasta and oats businesses raised the revenue.
All regular costs (including financing expenses) rose by 41.4% to $11.4 billion. As this was below the rise in revenue, Viterra’s earnings improved. The better profit is confirmed by a 37.6% rise in Viterra’s 2011 cash flow, to $497 million. This easily exceeded the net capital spending and acquisitions, as well as dividend payments of $37.2 million and intangible asset investment of $25.7 million.
Partly due to the much higher cash flow, Viterra’s net debt-to-cash-flow ratio is a safe 1.8 times. This also enabled the company to raise its dividend by 50%, to 30 cents a share. It now yields an attractive 2.9%.
In fiscal 2012, we expect Viterra to earn a higher 80 cents a share. Despite these improving results, the stock trades below its book value of $10.86 a share. Viterra is optimistic about its outlook.
When the Canadian Wheat Board’s monopoly on the marketing of crops ends on August 1, Viterra expects to profit from higher volumes and “optimizing its operations efficiencies.” It adds that “Strong fundamentals are expected to hold for global grain commodity markets.” And it foresees “positive harvest conditions in both South Australia and Western Canada.”
And Viterra’s global agri-business has extensive operations across Canada (30.2% of 2011 revenue), the United States (10.4% of revenue), Australia (10.5% of revenue), and New Zealand (3.3% of revenue). Viterra also has offices in major consuming countries, such as Japan, Singapore, China, Vietnam, India, Switzerland, Italy, Ukraine, Germany, and Spain.
Europe accounted for 8.7% of the revenue, Asia for 31.4%, and all other regions as a group for 5.6%.
This global diversification reduces Viterra’s exposure to problems in any one area. For instance, the company did well despite floods in parts of Western Canada last year.
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
Investing BasicsIs there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
Mutual Funds & ETFsCompare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
Stock AnalysisThese three stocks are resilient, fundamentally sound and also pay generous dividends.
ProfessionalsMutual funds are a good choice for emotional investors. Here are five popular funds to consider.
Investing NewsAre stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
Investing NewsHere are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>