Rusagro - Still Attractive Exposure to High Soft Commodity Prices
High soft commodity prices and a weaker ruble benefited Rusagro during the 2020-21 harvest season. While the tailwinds will ease in the 2021-22 season, we anticipate strong full-year 2021 results, with the EBITDA margin at a still decent 19%. We raise our 2021 and 2022 EBITDA forecasts by 62% and 33% in light of higher sugar, oil and wheat prices. This lifts our target price to $17.80 per GDR, and we reiterate our BUY recommendation. We like the company's fundamentals, though soft commodity prices remain volatile and regulatory risks remain.> Russian sugar market returning to balance. The local sugar market experienced a deficit last season. A better sugar beet harvest should see sugar output rise 22% to 6.3 mln tonnes in the 2021-22 season, causing sugar prices to decline. With the higher COGS, we expect the sugar segment's EBITDA margin to ease to 21.1% in 2021 and 21.4% in 2022.> Drop in grain prices to weaken agriculture segment's profitability. The 2021-22 grain harvest is expected to be strong, contributing to a decrease in soft commodities prices this autumn. Meanwhile, we see the agriculture division's EBITDA margin remaining high amid still-growing prices at 48.4% in 2021, then normalizing to 39.7% in 2022.> Improved sales mix and new export destinations to support meat segment margins. Russian pork output continues to increase as large players expand their capacity, but selling prices should be supported by high local demand and new export destinations. However, fodder costs are elevated, so we see the segment's EBITDA margin slightly easing to 19.2% in 2021 before improving to 21.5% in 2022 and 25.1% in 2023.> Oil and fats segment profitability also set to remain high in 2021. The division's EBITDA margin increased to 12.1% in 1H21 thanks to high prices and a weaker ruble in 1Q21. However, as sunflower prices have risen, profitability is set to ease in 2022. Additional pressure will come from export duties. We project a 10% EBITDA margin in 2021 and 9% in 2022.> Our DCF model returns a target price of $17.80 per GDR. Rusagro's financial performance should remain strong this year, as we see the price caps and export restrictions having a limited impact on profitability. We project R37.8 bln in EBITDA this year, for a 19% margin. Thanks to the record dividends for 1H21, we estimate the dividend yields at 12% in 2021 and 6-7% in 2022-23.Ros Agro, through its subsidiaries, is engaged in agricultural production, cultivation of pigs, processing of raw sugar and production of sugar from sugarbeet, vegetable oil production and processing. Co. and its subsidiaries are organised on the basis of four segments: Sugar, which is engaged in the production and trading operation with white sugar; Meat, which is engaged in the cultivation of pigs and selling of consumable livestock to third parties; Other agriculture, which is engaged in the cultivation of plant crops and dairy cattle livestock; as well as Oil, which is engaged in vegetable oil extraction, production and sales of mayonnaise, consumer margarine, and bottled vegetable oil.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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