Main menu
Edison Group
  • Home
  • Sparks
  • Equities

    Equities

    View All Equities

    Equities by Sector

    YXT.com

    MCap

    USD127m

    Last close

    USD23.43

    ▲ 20.23 (632.19%)

    Northern Data Group

    MCap

    EUR486m

    Last close

    EUR6.28

    ▲ −1.28 (−16.88%)

    Bodycote

    MCap

    GBP1,572m

    Last close

    GBP9.14

    ▲ −9.00 (−0.98%)

  • Sectors

    Sectors

  • Megatrends

    Megatrends

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

Tonkens Agrar — Better farm gate milk prices reduce losses

Tonkens Agrar — Better farm gate milk prices reduce losses

As management predicted at the interim stage, the sustained increase in farmgate milk prices helped Tonkens Agrar (Tonkens) deliver an improved performance during FY16/17. Self-help initiatives, such as a drive to gain new customers for processed potatoes and onions, also helped. The group remains vulnerable to changes in commodity prices. The current slump in potato prices for example makes it unlikely that there will be a further performance improvement in FY17/18.

Analyst avatar placeholder

Written by

Tonkens Agrar

Better farm gate milk prices reduce losses

Food & beverages

Scale research report - Update

2 January 2018

Price

€5.59

Market cap

€9m

Share price graph

Share details

Code

GTK

Listing

Deutsche Börse Scale

Shares in issue

1.66m

Last reported net debt at end June 2017

€17.7m

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 3,400 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

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

As management predicted at the interim stage, the sustained increase in farmgate milk prices helped Tonkens Agrar (Tonkens) deliver an improved performance during FY16/17. Self-help initiatives, such as a drive to gain new customers for processed potatoes and onions, also helped. The group remains vulnerable to changes in commodity prices. The current slump in potato prices for example makes it unlikely that there will be a further performance improvement in FY17/18.

Losses halve during FY16/17

Group revenues rose by €0.6m year-on-year during FY16/17 to €15.4m. This was primarily the result of a substantial improvement in farmgate milk prices as well as a successful initiative to attract new customers for processed potatoes and onions. The cost of materials as a percentage of revenues dropped from 57.3% in FY15/16 to 46.9%, reflecting a sharp drop in the price of potatoes used in the vegetable processing operation during the six months ended June 2017, as well as lower costs for crop protection products and cattle feed. This beneficial effect was partially offset by a 4% rise in personnel costs, much of which relates to statutory increases. Losses before tax narrowed by €1.1m to €0.9m. Net debt increased from €16.9m to €17.7m, almost double the net asset value.

FY17/18 performance likely to be similar to FY16/17

Management does not expect revenues to grow during FY17/18. While farmgate milk prices remain favourable, agricultural commodity prices are generally stable, and continued initiatives to attract new customers for processed products should help boost volumes and plant utilisation in the warehousing and marketing segment; potato prices are weak because of Europe-wide oversupply. Management expects to hold costs at around FY16/17 levels, but does not expect a further narrowing of losses.

Valuation: Trading at close to 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 the shares are trading at close to net asset value (€9.2m) and that the current market capitalisation (€9.3m) is substantially lower than the value of land and buildings at the end of June 2017 (€14.4m).

Financial summary

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

06/14

15.9

1.2

0.32

0.00

17.5

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 3,400 hectares of high quality farmland in the Saxony-Anhalt region of Germany is the starting point for a vertically integrated agricultural production group. It processes 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 is 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 (35% FY16/17 revenues)

Segmental revenues grew slightly, from €5.3m to €5.4m, reflecting success in expanding sales of peeled and packaged potatoes and onions, which was tempered by falling potato prices during the six months to June 2017. Management remains focused on improving capacity utilisation (up to 10,000 tons of raw material annually) to raise profitability to acceptable levels. Attracting additional larger customers is key. In addition, the group invested in special storage containers and cooling systems so that potatoes could be stored for longer, thus extending the period during which Tonkens could offer processed product from the 2016 harvest through to July 2017. There should also be some benefit from the shift to cultivating specific varieties of potatoes which are suitable for processing on the group’s own farms. Looking forward, potato prices remain depressed and there is a potential issue regarding storage of the crop from the calendar 2017 harvest. Ideally, potatoes should be dry when harvested. This was not possible because of weather conditions and may have implications for how long the crop can be stored before it is affected by mould.

Agriculture (32% FY16/17 revenues)

Segmental revenues rose slightly, from €4.7m to €4.9m, benefitting from higher sales of both cereals and potatoes. The group achieved yields that were ahead of the average. Partly this was attributable to the high quality of the soil in the group’s fields. For example, although the spring of calendar 2017 was drier than usual, the ability of the soil to retain moisture helped plants develop during this critical time. Hail damage at the Stemmern site in mid-June 2016 affected approximately 6% of the potato crop and 10% of the onion crop, but this did not impact the consolidated results because Tonkens is covered by hail insurance. Overall, prices received by farmers in Germany for grain were higher than the previous year: for example, at the end of August 2017 bread wheat was 2.5% higher and feed barley was c 8% higher. Although the calendar 2016 potato harvest in Germany was poor, and prices were high in the six months ended December 2016, the availability of imported new potatoes pushed prices down during the six months ended June 2017. This meant that at the end of the season in mid-August 2017 prices were just under €20/tonne, well below the previous year's value of € 27/tonne. Looking forward, while Tonkens continued to deliver crop yields that were higher than the national average, yields from the calendar 2017 harvest for most crops other than potatoes were lower than the previous year.

Milk production (20% FY16/17 revenues)

Segmental revenues grew from €2.5m to €3.0m. This was primarily the result of an increase in farmgate milk prices, which rose from 22c/litre in July 2016, which is below the cost of production, to 33c/litre in June 2017. Cattle numbers in Germany declined during the period, causing an imbalance between supply and demand. Tonkens responded to this by increasing milk production. The German dairy industry association expects farmgate milk prices to continue to be high during H118, predicting an average price for calendar 2017 of at least a third higher than calendar 2016. Tonkens received 38.5c/litre in September. Management expects farmgate milk prices to be sustained at prices where milk production is profitable, but is currently unable to invest in expanding the herd size significantly. This is because banks are reluctant to fund expansion in an industry where prices and profits are so volatile.

Renewable energy (14% FY16/17 revenues)

Segmental revenues declined very slightly, from €2.2m in FY16 to €2.1m. Tonkens Group reported a fire on a filter at the biogas plant in Stemmern in May 2017, which led to several weeks of power generation outage. The damage was remedied by the end of June, so the plant has been operating normally since then. So far the insurer has paid Tonkens €35k to cover the outage. This was received after the end of FY17. The level of the final settlement has not yet been determined. Management does not intend to expand this segment because of the uncertainty regarding subsidies for electricity produced from either biogas or solar panels.

Valuation

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 the shares are trading at close to net asset value (€9.2m) and that the current market capitalisation (€9.3m) is substantially lower than the value of land and buildings at the end of June 2017 (€14.4m).

Exhibit 1: Peer group comparison

Company

Market cap €m 

Historic EV/Sales (x)

Historic EV/EBITDA (x)

AGROGENERATION

40

1.4

4.4

AGROLIGA GROUP PLC

6

0.4

1.8

AGROMINO A/S

31

1.0

7.8

AUSTRIA TECHNOLOGIE & SYSTEM

952

1.7

10.6

BONIFICA FERRARESI SPA

198

24.5

53.2

FIRSTFARMS A/S

37

4.0

21.2

KRE.KA S.A.

1

1.0

-

PRODUCE INVESTMENTS PLC

52

0.4

5.3

Mean

1.4

8.5

TONKENS AGRAR AG

10

1.8

13.6

Source: Bloomberg. Note: Prices at 20 December 2017. Grey shading indicates exclusion from mean.

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

GVC Holdings — A gaming powerhouse

GVC’s proposed acquisition of Ladbrokes Coral (LCL) will create a leading global multi-brand gaming business, with revenues of c £3.3bn. Completion is expected in late Q1/early Q218. 90% of the enlarged group’s revenues will be derived from locally regulated and/or taxed markets. As witnessed by the successful integration of bwin, GVC is well positioned to deliver material synergies and, regardless of the outcome of the triennial review, the company expects double-digit EPS accretion after the first year. GVC has reported consistently impressive results throughout 2017 and its shares trade appropriately towards the top end of the peer group, at 12.8x EV/EBITDA and 16.4x P/E for 2018e. We introduce new forecasts to reflect the disposal of the Turkish business.

Continue Reading
Cookie Policy Overview
Edison Group

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping us understand which section of the website you find more interesting and useful. See our Cookie Policy for more information.

Strictly necessary and functional

These cookies are used to deliver our website and content. Strictly necessary cookies relate to our hosting environment, and functional cookies are used to facilitate social logins, social sharing and rich-media content embeds.

Advertising

Advertising Cookies collect information about your browsing habits such as the pages you visit and links you follow. These audience insights are used to make our website more relevant.

Performance

Performance Cookies collect anonymous information designed to help us improve the site and respond to the needs of our audiences. We use this information to make our site faster, more relevant and improve the navigation for all users.