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ATON July 2010
RUSGRAIN: OVERVIEW
0 5 10 15 20 25
Bear points
High debt: We estimate the 2010E gross debt/EBITDA ratio at 3.6x,
however, high leverage is usual for agricultural companies
Low stock liquidity
2
ATON July 2010
VALUATION
Our fair value is based on a six-year DCF model with a 3% terminal growth rate and a
Current MktCap: $107mn 14.5% WACC
Fair equity value after M&A: Rusgrain’s land bank alone is worth $30mn on our estimates (not included in our
$200mn 2011E valuation)
Company is trading on just 5.4x 2011E P/E multiple on consolidated basis
3
ATON July 2010
COMPANY SNAPSHOT
4
ATON July 2010
14,000
30%
12,000
25%
10,000
Winter wheat 20%
8,000 Summer wheat 15%
Sunflower
25% 26% 25% 24% 23% 22%
6,000 10% 22% 21%
17%
4,000 5%
0%
2,000
07 08 E E E E E E E
20 20 09 1 0 01 1 01 2 1 3 01 4 15
0 20 20 2 2 20 2 20
07 08 09 E E E E E E
20 20 20 10 11 12 13 14 15
20 20 20 20 20 20
5
ATON July 2010
6
ATON July 2010
2010E
2011E
2012E
2013E
2014E
2015E
2007
2008
5 3.4
2.1 1.3 0.8 -10% -8.8%
0.4
-10.9%
0 -15%
2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Net EBITDA
7
ATON July 2010
COSTS
Grain production costs structure (2010E) Grain production costs vs harvest yield
Utilities Seeds
Elevator services 12,000 3.5
1% 11%
16%
10,000 3.0
Chemicals
9% 2.5
8,000
2.0
Equipment rent 6,000
12% Fertilizers 1.5
14% 4,000
1.0
Maintenance 2,000 0.5
6%
0 0.0
Fuel
Salaries 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E
10%
21%
Costs/ha, RUB (LHS) Costs/tonne, RUB, (LHS) Harvest yiled, t/ha (RHS)
AGS costs structure (2010E) Poultry production costs and prices, RUB/kilo
Gas Heat 120
Uti lities
3% 2%
6% 100
80
60
40
20
0
2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
Raw materi als
89% Costs per 1 kilo of poultry Price per 1 kilo of poultry
8
ATON July 2010
2010E
2011E
2012E
2013E
2005
2006
2007
2008
Russian meat market breakdown (mn tonnes) Meat consumption per capita (kg pa) Meat consumption per capita (kg pa)
10 mn tonnes $bn 50 Biological norm for Russian climate = 200 g per day
90 80
2.9 80
8 40 70
2.8 70 73
2.4 2.4 2.5 2.6
2.5 2.4 2.3 2.4 60
6 30 60
50 50
2.9 2.9 3.0 86
4 2.7 2.7 2.8 2.8 20 40 40
2.6 2.7 74 75
2.5 30 61 63 65 66 66
53 55 56 30 55 50 52 54 56
2 10 20 45
2.6 2.7 2.7 2.8 2.9 3.0 3.1 3.2 20
2.2 2.4 10 4
0 0 0 10
USA
2009E
2010E
2011E
2012E
2013E
2014E
UK
India
China
2005
2006
2007
2008
Germany
Brazil
France
BRC average
Russia 2013E
Russia 2008
2014E
1990
1995
2000
2005
2006
2007
2008
Poultry Pork
Beef Value (RHS)
9
ATON July 2010
INDUSTRY SNAPSHOT
Russian agricultural land (mn ha) Russian grain harvest (mn tonnes) Russian grain harvest yield (mn tonnes)
140
140
120 3.0
100 120
80 100 2.5
60 80 2.0
40 60 1.5
20
40
0 1.0
2009E
2010E
2011E
2012E
2013E
2014E
1992
1995
2000
2003
2004
2005
2006
2007
2008
20
0.5
0
2009E
2010E
2011E
2012E
2013E
2014E
1992
1995
2000
2003
2004
2005
2006
2007
2008
0.0
Cultivated land land, mn ha Idle land, mn ha
2009E
2010E
2011E
2012E
2013E
2014E
1992
1995
2000
2003
2004
2005
2006
2007
2008
NPK* domestic price outlook ($/t) Tractors per 1000 cropped hectares Mineral fertilisers usage (mn tonnes)
600 12 12
500 10 10
400
8 8
300
6 6
200
4 4
100
0 2 2
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2005
2006
2007
2008
0 0
1990
1991
1992
1993
1994
1995
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1990
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
*NPK = Nitrogen, Phosphor, Potash
10
ATON July 2010
GOVERNMENT SUPPORT
The government subsidises domestic agricultural companies interest payments on non-public debt. The government compensates
interest payments up to the current refinancing rate (8.50% currently), e.g. if company borrows $100mn at a 10% interest rate, its
annual interest payments will amount to $1.5mn
0% income tax rate planned to be in effect until 2013
Import duties and quotas on meat, milk and sugar support local prices and stimulate investment activity in the domestic agricultural
sector
The government has intervened to prop up grain prices at various points since 2003
Leasing programme aimed to facilitate replacement of outmoded agricultural machinery. Rosagroleasing (government institution
which provides equipment to agricultural producers) has introduced 7 to 15 year leasing programmes for livestock and agricultural
equipment at a 2% lease rate with 7% upfront payment, i.e. spreading investments into grain, meat and milk production over 7 to 15
years
11
ATON July 2010
2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Revenue 46.0 54.7 88.0 99.8 101.5 210.7 303.8 321.5 339.4 358.7 377.8
CoGS -36 -42 -70 -85 -91 -161 -229 -237 -245 -255 -263
Gain (loss) from change in value of bio assets 0 0 1 6 4 -1 -1 -1 -1 -1 -1
Gross profit 10 13 19 21 15 48 74 84 94 103 114
SG&A -8 -10 -15 -20 -14 -30 -43 -45 -48 -50 -53
Invemtiry losses -1 0 0 0 0 0 0 0 0 0 0
Negative goodwill 0 0 0 0 0 0 0 0 0 0 0
Impairment of PPE 0 0 0 0 0 0 0 0 0 0 0
Bad debt expense and change in provisions 0 -1 0 0 0 0 0 0 0 0 0
Other expense, net 0 -1 -1 -2 0 0 0 0 0 0 0
EBIT 1 0 4 -1 1 19 32 39 46 53 61
EBITDA 2 2 6 4 3 23 39 47 54 63 71
Financial income 0 1 1 1 0 0 0 0 0 0 0
Financial expense -2 -3 -6 -10 -10 -9 -9 -7 -5 -3 0
PBT -1 -2 -1 -9 -9 10 23 32 41 50 61
Income tax 0 0 -1 0 -0.4 -1 -3 -5 -8 -10 -12
PAT -1 -2 -2 -9 -10 8 20 27 33 40 49
Minority interest 0 0 0 0 0 0 0 0 0 0 0
Net income -2 -2 -2 -9 -9.4 8 20 27 33 40 49
Margins
Gross 21.1% 23.2% 21.7% 21.1% 14.3% 22.9% 24.5% 26.0% 27.6% 28.8% 30.2%
EBIT 1.5% 0.6% 4.0% -0.7% 0.5% 8.9% 10.5% 12.0% 13.6% 14.8% 16.2%
EBITDA 3.3% 3.1% 6.8% 4.5% 2.9% 10.7% 13.0% 14.5% 16.0% 17.5% 18.8%
Net neg neg -2.0% -8.8% -9.2% 3.8% 6.5% 8.4% 9.7% 11.1% 12.9%
Growth rates
Revenue 18.8% 61.0% 13.4% 1.6% 107.7% 44.1% 5.8% 5.6% 5.7% 5.3%
EBITDA 10.3% 257.3% -25.4% -34.9% 676% 75.1% 18.1% 16.7% 15.9% 12.8%
Net income nm nm nm nm nm 142.3% 37.7% 21.7% 21.5% 22.3%
Other ratios
Effective tax rate nm nm nm nm nm 15% 15% 15% 20% 20% 20%
Effective interest rate 10.8% 7.6% 14.4% 19.4% 13.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
SG&A as % of revenue 17.9% 18.6% 17.0% 17.0% 17.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
12
ATON July 2010
13
ATON July 2010
2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Net income -1.6 -2.1 -1.8 -8.8 -9.4 8.1 19.6 27.0 32.8 39.9 48.8
Depreciation & Amortization 0.8 1.4 2.4 5.1 3.9 3.7 7.6 8.0 8.2 10.0 10.0
Other Items 10.4 11.9 1.1 1.7 6.6 -24.6 3.3 0.6 0.5 2.4 2.4
(Increase)/Decrease In Net Working Capital -10.9 -22.3 4.6 -12.8 -2.5 -0.7 -1.3 -0.5 -0.4 -0.4 -0.4
Cash Flow From Operations -1.3 -11.2 6.4 -14.8 -1.4 -13.5 29.2 35.1 41.2 51.9 60.8
Capital Expenditures -0.5 -7.3 -8.1 -16.6 -8.5 -15.0 -12.0 -10.0 -10.0 -10.0 -10.0
Free Cash Flow -3.4 -19.3 -1.7 -31.4 -9.9 -28.5 17.2 25.1 31.2 41.9 50.8
Financing Cash Flow 3.0 18.8 0.5 32.8 25.0 18.0 -5.0 -20.0 -17.5 -20.0 -30.4
Net Change In Cash -0.4 -0.5 -1.2 1.5 15.1 -10.5 12.2 5.1 13.7 21.9 20.4
Cash, period beginning 1.3 1.0 0.3 -0.8 0.6 15.7 5.2 17.4 22.5 36.1 58.1
Cash, period end 1.0 0.5 -0.8 0.6 15.7 5.2 17.4 22.5 36.1 58.1 78.5
14
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ATON July 2010
Head of Equity and Fixed Income Group Head of Sales Head of Trading Head of Research
Alexey Artemenko llya Veller Denis Sarantsev Alexei Yazikov
Phone +7 (495) 510 1653 Phone +7 (495) 287 9287 Phone +7(495) 777 6677 Tel.: +7 (495) 777 6677 (ext. 2640)
Alexey.Artemenko@Aton.Ru ilya.veller@aton.ru denis.sarantsev@aton.ru alexei.yazikov@aton.ru
ATON RESEARCH TEAM
Strategy & Economics Oil & Gas Special Situations & Small Caps Group Telecoms & Media Editorial
Peter Westin Elena Savchik Iouli Matevossov Stanislav Yudin Head of Editorial and Production
Chief Equity Strategist/Economist Tel.: +7 (495) 777 6677 (ext. 2673) +7 (495) 777 6677 (ext. 2658) +7 (495) 777 6677 Lauren Mandy
+7 (495) 777 6677 (ext. 2656) elena.savchik@aton.ru iouli.matevossov@aton.ru stanislav.yudin@aton.ru +7 (495) 777 6677 (ext. 2648)
peter.westin@aton.ru lauren.mandy@aton.ru
Slava Bunkov Mikhail Pak Irina Skvortsova
Inga Foksha Tel.: +7 (495) 777 6677 (ext. 2642) +7 (495) 777 6677 (ext. 2647) +7 (495) 777 6677 (ext. 2675) Editor
+7 (495) 777 6677 (ext. 2644) slava.bunkov@aton.ru mikhail.pak@aton.ru irina.skvortsova@aton.ru Andrew Risk
inga.foksha@aton.ru +7 (495) 777 6677 (ext. 2641)
Utilities Nikita Melnikov Metals & Mining andrew.risk@aton.ru
Alexander Sivolobov Ilya Koupreyev +7 (495) 777 6677 (ext. 2659) Dinnur Galikhanov
+7 (495) 777 6677 (ext. 2671) 7 (495) 777 6677 (ext. 2655) nikita.melnikov@aton.ru +7 (495) 777 6677 (ext. 2677) Editor
alexander.sivolobov@aton.ru ilya.koupreyev@aton.ru dinnur.galikhanov@aton.ru Anna Bogdanova
Banks Consumer Goods & Retail +7 (495) 777 6677 (ext. 2657)
Svetlana Kovalskaya Vlad Nigmatullin Ivan Nikolaev Pavel Shelekhov anna.bogdanova@aton.ru
+7 (495) 777 6677 (ext. 2649) +7 (495) 777 6677 (ext. 2643) +7 (495) 777 6677 (ext. 2646) +7 (495) 777 6677 (ext. 2672)
svetlana.kovalskaya@aton.ru vlad.nigmatullin@aton.ru ivan.nikolaev@aton.ru pavel.shelekhov@aton.ru Translator
Elena Korzhenevskaya
Technical analysis Alexey Evstratenkov +7 (495) 777 6677 (ext. 2678)
Natalia Vigodina +7 (495) 777 6677 (ext. 2679) elena.korzhenevskaya@aton.ru
+7 (495) 777 6677 (ext. 2645) alexey.evstratenkov@aton.ru
natalia.vigodina@aton.ru