Thursday, February 15, 2007

2000 Square Miles of Argentina Land, $400 million: Cresud Inc(CRESY)

We seldom, if ever, research international companies, not because we don't believe there isn't value outside the good old USA, but because we find plenty of domestic research opportunities to keep us busy.

This week, however, we feature an interesting Argentine company, Cresud (CRESY, ADR) which in US terms, is a microcap. This despite the fact that the company owns 1.28 million acres of land.

Cresud is an agricultutal company whose major businessses include grain production (soybeans, wheat, sunflowers, corn), beef and milk production, forestry, and to a lesser degree, real estate.

The Fundamentals
The company reported 2006 sales of $36.4 million (the company reports in the Argentine Peso), earning $8.9 million. That was up from 2005's sales of $27 million, but down from net income of $30 million (you read that correctly, 2005 net income reflects some large one time gains relative to sales). With a current market cap of $420 million, this company is not cheap on a price/earnings basis.

The Land
What attracted us was the 516,000 "hectares" (a hectare is the equivalent of 2.471 acres) or 1.276 million acres of land the company owns. Cresud leases some additional acreage, which we ignore in our calculations. On an Enterprise Value per acre basis, that works out to just $365 per acre.
If you've been following farmland at all in recent years, it is now considered by some to be an asset class. Cresud may be an interesting way for the small investor to gain non US exposure to farmland.

The Risks
This is Argentine land, and historically, Argentina has had some severe boughts with inflation. The economy seems to be in decent shape now. The company also reports in Pesos, so their is currency risk (the current exchange rate is about 3 pesos to thre US dollar).

The Annual Report
Cresud's Annual Report, available on the company's website is required reading for potential investors. It does an excellent job of dissecting Cresud's businesses, land uses, acreage by region and business, as well as providing data about the increasing prices of Argentine farmland.

*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

1 comment:

Anonymous said...

1 million acres of land has revenue of 30 million?

Perhaps this is a case of buy cheap get cheap?