BCS initiates analyst coverage of Cherkizovo Group’s shares

October 14, 2014

BCS Financial Group started analysing Cherkizovo Group’s shares and granted them a “buy” recommendation with a target price of $18/GDR. The compound annual average growth rate of earnings per share is expected to be 66% over the next three years.

According to the financial group’s report, Cherkizovo Group, as one of the largest agricultural producers is benefiting from the favourable meat market trends and state support designed to stimulate local food production.

In the analysts’ opinion, the company’s cutting-edge production facilities, vertical integration, and scale effectively secure healthy profit margins and positions for Cherkizovo Group to become a domestic meat industry consolidator.

FY14 financial results have a positive trend, with 1H14 earnings amounting to 82% of the FY14E consensus estimate. Therefore, BCS considers the current momentum as a unique buying opportunity for investors seeking high-value companies with significant growth potential.

According to BCS analysts, the meat market “has huge potential”. Russian per capita meat consumption (75 kg) lags behind the European average (76 kg), as well the Soviet era level (78 kg), suggesting that the Russian meat market has strong upside potential. Experts are forecasting the Russian meat market to show 2.5-3.0% growth per annum driven by changing consumption habits and disposable income growth.

In summary, BCS analysts say that the company’s 2H14 earnings may exceed the expectations of investors amid media reports of meat price increase and shareholders’ announcements to approve a 5% dividend yield.

About Cherkizovo Group

Cherkizovo Group (LSE:CHE; MOEX:GCHE) is the largest meat and feed manufacturer in Russia. The Group is one of three leaders on the poultry meat, pork, and sausage product markets. The company's best known brands are Cherkizovsky, Petelinka, Kurinoe Tsarstvo, and Mosselprom. CEO Sergei Mikhailov and members of his family control 63% of Cherkizovo Group, and 37% of the shares are quoted on the LSE and RTS/MICEX.

Due to its vertically integrated structure, which includes agricultural land, grain storage facilities, own feed production, livestock breeding, growing and slaughtering, as well as meat processing and integrated distribution, Cherkizovo has consistently delivered sustainable revenue and profit growth. In 2013, the company's consolidated revenue exceeded $1.6 billion, and the Group produced more than 500,000 tonnes of meat products.

Cherkizovo Group’s strategy calls for organic growth and setting up new plants, as well as consolidating its assets. In the past 5 years alone, Cherkizovo Group has invested more than $1 billion in development of the domestic agroindustrial sector.