Tonkens Agrar — Value-added strategy drives H118 uplift

Tonkens Agrar — Value-added strategy drives H118 uplift

Management’s strategy of generating more profit from its crops by selling processed onions and potatoes, supported by higher farm gate milk prices and an exceptional profit on the sale-and-leaseback of land, delivered a three-fold increase in profit after tax during H117/18. Management has raised FY17/18 guidance and now expects a year-on-year increase in both revenues and profit after tax.

Analyst avatar placeholder

Written by

Tonkens Agrar

Value-added strategy drives H118 uplift

Food & beverages

Scale research report - Update

23 April 2018

Price

€5.30

Market cap

€9m

Share price graph

Share details

Code

GTK

Listing

Deutsche Börse Scale

Shares in issue

1.66m

Last reported (€m) net debt at end December 2017

16.5

Business description

Tonkens Agrar is engaged in the cultivation of crops including cereals, potatoes, onions and oil seed rape; the storage, processing and marketing of vegetables; milk production; and the production of renewable energy from biogas plants that run on waste produced by the group and from photo-voltaic installations. It farms c 3,500 hectares of high-quality land in the Saxony-Anhalt region of Germany.

Bull

Demand for agricultural staples relatively unaffected by economic conditions.

Demand for agricultural produce supported by rising global population.

Vegetable processing improves margins.

Bear

Output affected by weather conditions and pests.

Profitability affected by commodity price fluctuations.

Low free float (32.2%).

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Management’s strategy of generating more profit from its crops by selling processed onions and potatoes, supported by higher farm gate milk prices and an exceptional profit on the sale-and-leaseback of land, delivered a three-fold increase in profit after tax during H117/18. Management has raised FY17/18 guidance and now expects a year-on-year increase in both revenues and profit after tax.

Profit after tax trebles

Group revenues rose by €0.5m year-on-year during H117/18 to €8.2m. This was attributable to the successful expansion of sales of processed potatoes and onions. Improved milk prices were offset by extremely low prices for unprocessed potatoes. The cost of materials as a percentage of revenues dropped from 46.6% in H116/17 to 45.5%, as material costs grew more slowly than revenues. Personnel cost increases were limited to 2%. Profit after tax rose by €1.9m to €2.6m. This was partly the result of a more than 70% increase in the volumes of peeled potatoes processed, which is a high-margin activity, partly a €0.9m uplift in other income, which benefitted from the sale-and-leaseback of property. Net debt reduced from €17.7m at end June 2017 to €16.5m, cutting gearing from 193% to 140%.

Management raises FY17/18 guidance

In December management noted that it did not expect revenues to grow during FY17/18 or a further narrowing of losses because of weak potato prices. While management feels it is still too early to make reliable predictions about the harvest this year, farm gate milk prices remain favourable, German grain prices are stable and continued initiatives to attract new customers for processed products are helping boost volumes and plant utilisation in the warehousing and marketing segment. Management now expects FY17/18 sales to be higher than the prior year, resulting in a significant improvement in the result from operating activities and a net profit after tax for the period.

Valuation: Trading below net asset value

The shares have dipped from a peak of €7.40 in September but are still trading on multiples that are above the mean for our sample of agricultural producers. We note that at current levels the market capitalisation (€9m) is substantially below both the reported net asset value (€11.8m) and the reported value of land and buildings at the end of December 2017 (€13.9m).

Financial summary

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

06/14

15.9

1.2

0.32

0.00

16.6

N/A

06/15

13.8

(1.2)

(0.43)

0.00

N/A

N/A

06/16*

14.8

(2.0)

(0.99)

0.00

N/A

N/A

06/17

15.4

(0.9)

(0.48)

0.00

N/A

N/A

Source: Company data. Note: *Restated for BilRuG.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Divisional analysis

Tonkens Agrar’s c 3,500 hectares of high quality farmland in the Saxony-Anhalt region of Germany is the starting point for a vertically integrated agricultural production group. It peels and chops the potatoes and onions grown on the farm in-house, substantially adding value to the harvested vegetables. Manure from the dairy herd and residual material from harvesting and processing crops are used to generate electricity, creating an additional revenue stream that is relatively predictable and non-seasonal. Some of the maize grown on the farm is used as cattle feed.

Warehousing and marketing (37% H17/18 revenues)

Segmental revenues grew by 19% year-on-year during the six months ended December 2017. This reflects success in expanding sales of peeled and packaged potatoes and onions by over 70%. Output benefitted from prior-year investment in special storage containers and cooling systems so that potatoes could be stored for longer. Management remains focused on improving capacity utilisation by attracting additional larger customers.

Agriculture (27% H117/18 revenues)

Segmental revenues dropped by 21% year-on-year. Although Tonkens outperformed nationwide average crop yields, as in the previous year, it reported slightly lower harvest volumes for all crops apart from potatoes. This volume decrease was caused by unfavourable weather conditions with the harvest repeatedly interrupted by rain. Prices for cereals were similar to the prior year, but still unattractive. Oilseed rape prices were lower than the previous year and oversupply of potatoes resulted in extremely low prices for unprocessed potatoes that were below the cost of production.

Milk production (22% H117/18 revenues)

Segmental revenues increased by 29% year-on-year. This was primarily the result of an increase in farm gate milk prices, which rose from 22c per litre, below the cost of production, in July 2016 (start of H116/17), to 33c per litre in June 2017 (start of H117/18). As milk production in Germany grew by 5% between December 2016 and December 2018, farm gate milk prices have begun to reduce as the previous imbalance between supply and demand is evening out. Tonkens recently received 34c per litre compared with an average of 38c per litre during the six months ending December 2017. Further price movements are possible over the remainder of the financial year.

Renewable energy (13% H117/18 revenues)

Segmental revenues showed a very modest (2%) year-on-year decline. Management does not intend to expand this segment because of the uncertainty regarding subsidies for electricity produced from either biogas or solar panels. The activity is retained because the biogas plants represent a mechanism for generating a steady and predictable income from the residual materials from both agricultural production and vegetable processing as well as manure from the dairy herd. The waste product from the biogas plants, a mash, is used as a fertiliser on the group’s farmland, reducing the amount that needs to be purchased.

Valuation

The shares have fallen from a peak of €7.40 in September but are still trading on multiples that are above the mean for our sample of agricultural producers. We note that the current market capitalisation (€9m) is substantially below both net asset value (€11.8m) and the value of land and buildings at the end of December 2017 (€13.9m).

Exhibit 1: Peer group companies

Company

Market cap (€m) 

Historic EV/sales (x)

Historic EV/EBITDA (x)

Agrogeneration

39

1.4

4.4

Agroliga Group

6

0.4

1.9

Agromino

32

1.4

7.9

Austria Technologie & System

911

1.6

9.9

Firstfarms

37

2.7

11.8

Kre.Ka

1

1.0

-

Produce Investments

48

0.4

5.2

Mean

1.3

6.9

Tonkens Agrar

9

1.7

13.0

Source: Bloomberg. Note: Prices at 20 April 2018.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Healthcare

Quantum Genomics — Accelerating timelines

Quantum Genomics made a number of announcements when it presented its three-year strategic plan on 19 April 2018. Importantly, it is accelerating both its hypertension and heart failure programmes. The NEW-HOPE study in 250 hypertensive overweight patients is expected to complete patient dosing by the end of the year (previously Q119). It is also moving forward with the Phase IIb trial in heart failure without waiting for the final results due to the safety data seen so far and positive results in recent animal studies. The study is expected to launch in Q418 with results expected in H220.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free